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THE LIBRARY

THE UNIVERSITY

OF CALIFORNIA

LOS ANGELES

^TcEToEPAfjn

^)<'p^ml^ UNION^<i\

^ticalC^^

THE
PEOPLE'S PROGRESS

^ THE

PEOPLE'S PROG

A STUDY OF THE FACTS OF NATIONAL
WEALTH, WITH SOME ANSWERS TO

SOCIALISTS

BY FRANK IRESON, B.A.

AUTHOR OF
' A TEXT-BOOK OF BOOK-KEEPING '

WITH DIAGRAMS

LONDON
JOHN MURRAY, ALBEMARLE STREET, W.

1910

PRINTED BY

BAZELL, WATSON AND VINEY, LD.

LONDON AND AYLEaBLKY.

PREFACE

This volume is the outcome of a private discussion
(1) as to the extent to which the Artisan Class
has benefited by the undoubted progress of the
people of this country during the last sixty years,

S.O and (2) as to the possibility of gain to that class
by a Socialistic redistribution of our present national
income.

_ Inquiry upon these two questions has resolved
itself into an investigation of the Sociahst dictum

5 that "the proportion of income received by the

'^ Manual Labour Class is very small in comparison
with the proportion received by Capital." In the

Q following pages an attempt has been made to define
and compare these proportions, and to show, from
the point of view of a pronounced Individualist,
how fallacious are many of the so-called " facts "
brouglit forward by Socialist writers, in relation
not only to the Distribution of Income, but also
to the Rewards of Capital.

A special feature is the importance herein attached
to the margin between the " receipt " and the
" enjoyment " of income, resulting in that increase
of capital which plays so vital a part in the improved

vi PREFACE

economic condition of the country. Attention is
also specially directed to the need for Headwork,
as well as Capital and Handwork, in order to
make up the three factors imperatively necessary
to modern wealth-production.

The estimates of income relate principally to
1905, that being the year on which was based the
Report of the Select Committee on Income Tax.
The sources from which all the figures are obtained,
chiefly Blue Books or works on economics, are
quoted throughout.

The word " Socialism " is herein used to connote
the leading feature of that school of thought,
whereon all its adherents are agreed, viz. the State
Ownership of Capital, and the consequent Suppres-
sion of Private Enterprise.

F. I.

December 1909.

CONTENTS

PART I. THE DISTRIBUTION OF INCOME

CHAP.

I. The National Income

II. The PRopoRTfox of Poor People

III. The Division of Income

IV, Socialist Estimates of Income

V. The Natiox\s Savings

VI. The Schpll's Income of the Rich

VII. Income not Available for Redistribution
VIII. Egmjal Redistribution of Income

IX. Graded Redistribution of Income
X. Mis-statements of Income . . . .

XI. Inaccuracy of the Income-tax Statistics .

XII. The People's Progress . . . .

XIII. International Socialism . . . .

vii

PAGE

3
9

35
38
44
51

59
67

VUl

CONTENTS

PART II. THE REWARDS OF CAPITAL

CHAP.

XIV. The Nature of Capital .

XV. The Operation of Capital

XVI. The Three Factors of Wealth-production

XVII. The Owners of Capital

XVIII. The Rewards ok Capital

XIX. Capitalists as Trustees for the Public

XX. Family Affection the Chief Incentiv
Thrift

XXI. Unearned Income

XXII. Increment caused by the Coa;

XXIII. The Master of Commerce
Tables A to M
Diagrams One to Five .

M unity

E to

PACK

n
82

104

112

117

124

130

136

145
155

PART I

THE DISTRIBUTIOX OF INCOME

PART I

THE DISTRIBUTION OF INCOME

CHAPTER I

THE NATIONAL INCOME

The annual income of the United Kingdom in
1903 has been computed by Sir R. GifFen {Jour f ml
of Royal Statistical Society, vol. Ixvi., part iii.)
to amount to £1,750,000,000. This figure repre-
sents an average of the estimates of the leading
economists, and in adopting it we are £50,000,000
below the estimate for 1902 of the Fabian Society
{Facts for Socialists, p. 2). Probably by 1905 the
income in question had increased to at least
£1,800,000,000, but the lower amount has never-
theless been taken by the writer as a basis figure,
in order to a\()id (as will be seen below) any
overstatement as to the income of tliose who do
not pay income tax.

Tills 1,750 millions is shared, in unecpial pro-
portions, amongst a po|)ulation whicii in 1905 was
estimated at 43,221,145 (Cd. 4413, p. 190). Reckon-
ing the average family to consist of about four and
a half persons (Cd. 2174, p. 193), there are in round
numbers 10 milhon famihcs in the United Kingdom,

4 THE NATIONAL INCOME

The income averages £175 per family, or £40 per
person.

According to the estimate of Sir Henry Primrose
(Bhie Book 365, p. 8), about 1,100,000 people in this
country pay income tax, the aggregate income of
these people, disclosed in 1905, being £728,000,000.
He points out, however, that the whole of this
amount is not received by the said taxpayers, since
a portion of it, estimated by him at £50,000,000,
and comprising the items set out on page 48, is
not distributed among them. This deduction being-
made, the income actually received appears at
£678,000,000, and it is shared amongst these 1,100,000
people as shown in the first and third columns of
the upper part of Table A (p. 145). With their
families, which as a rule are smaller than amongst
the poor, we can reckon that this group comprises
about 4,000,000 persons.

It will be noticed that these payers of income
tax, frequently referred to as the " Classes," are
divided in the proportion of one rich person with
over £5,000, 29 persons of the Upper Middle Class
with £700 to £5,000, and 80 persons of the Lower
Middle Class with £160 to £700. Among the
Classes, therefore, only i man in no is rich. As
compared with the total of male adults in the
country (see Table M, p. 154), the proportion of rich
is I man in 1,150.

The remainder of the population, commonly
styled the " Masses," who pay no income tax
because their individual incomes are less than £160
a year, are about 39,000,000 in number. Their
annual income works out at 1,750, less 728, equals
1,022 millions sterling. In order to get some idea
as to how this amount is divided, reference can be

THE NATIONAL INCOME 5

made to the following figures (Cd. 4413, p. J07),
compiled from the Census of 1901. It will be
noticed, from Table M, that the number of
23,197,575 unoccupied persons mentioned below is
chiefly made up of children under fifteen, married
women, and old people over sixty-five.

Males. Females. Total.

Total of Persons Occupied . . 12,951,186 5,309,960 18,261,146
Without specified Occupations

or Unoccupied— all ages . . 7,151,222 16,046,353 23,197,575

20,102,408 21,356,313 41,458,721

Allowing for increase of population, the number of
" persons occupied " in 1905 may be taken at
19,000,000.

The poorest group amongst these comprises the
casual, the incompetent, and the aged or ageing
workers, who form what may be termed the camp-
followers of the industrial army. With them there
are included many who earn little or nothing, such
as the 1,113.830 persons of both sexes and all ages
(Cd. 4413, p. 240), including vagrants and insane,
who in 1905 received outdoor or indoor poor relief.
The luimber of these incompetents and casuals, in
so far as they are industrially occupied upon irregular
and uncertain work, may be estimated at about
1,000,000, and their earnings, averaging say £2^
per worker, may be taken at about £25,000,000
anruially {Rirhcs mid Povcrtij, by L. G. Chiozza
Money, pp. 24, 25). In view of the large pro-
portion of this group who earn nothing whatever,
we can reckon on an average of only one worker
to eacli family, and the number of families there-
fore at 1,000,000. As there are about 10,000,000
families in the United Kingdom, whereof this

6 THE NATIONAL INCOME

residuum forms a tenth })art, it lias come to be
known as the "submerged tenth."

Next we come to the Manual Labour Class,
whose number and earnings in 1886 were computed
by Sir Robert Giffen (Cd. 7063, I., p. 472) as
follows : —

Aggregate Earnings.

439,000,000

118,000,000

46,000,000

29,000,000

Number.

Annual Average
jier Wage-earner

* d

Men

• 7,300,000

0 0

Women

. 2,900,000

0 0

Boys

. 1,700,000

8 0

Girls .

. 1,260,000

0 0

13,160,000 48 o o 632,000,000

He points out that these estimates were made " at
a period of depression, and not at a period of
prosperity : they give a minimum, not a maximum,
figure." They include allowances for lodging, food,
free coal, clothing, etc., where these extras are
given as well as wages. Finally — and a special
note should be made of the fact — they include
allowance both for want of employment and for
short time, being based, not on a weekly wage,
but upon " the actual wages paid by employers
for a whole year " (Cd. 7063, I., Answers 6915 and

6935)-

In order to bring these figures up to date, we

can take note of the following particulars, as to
the general course of wages and increase in popula-
tion (Cd. 4671, p. 44), the wages in 1850 being
stated at the figure 100 as a basis for comparison.

Level of Wages. Population.

1850 100 27,000,000

1885 .
1900 .

173-3 43,221,000

1905
1907

1494 36,000,000

1787 41,155,000

181 7 44,100,000

THE NATIONAL INCOME 7

Allowing for the rise in wages and for the increased
population, we can estimate that in 1905 there were
fuUy 14,000,000 manual workers (men, women, boys,
and girls) earning £750,000,000, being an average
of £53 per head per annum.

The next group to be considered is that con-
sisting of people who are neither income-tax payers
on the one hand nor manual labourers on the other
hand. For instance there were in this country, at
the time of the last Census, 482,000 clerks, 158,000
agents and travellers, 276,000 school-teachers, 254,000
civil servants engaged in Government work, 52,000
ministers of religion, 133,000 persons connected with
art, music, and the drama, beside a large number
of small traders, shop-keepers, shop-assistants,
farmers, inn-keepers, lodging-house-keepers, pen-
sioners, etc., together with struggling professional
men, and various people living in retirement on
their modest private means, whose individual profits
or wages were in most cases below £3 per week.
The group is probably about 3,000,000 in number
of persons occupied, and there can be little doubt
that it is steadily growing, owing partly to the
spread of education, which tempts people to desert
handwork for headwork, and partly to general
economic causes. Its income in 1886 was esti-
mated by Sir Robert GifFen (Cd. 7063, I,, p. 473)
at " not less than 150 to 200 millions sterling per
annum." Allowing for the increase since then of
salaries and wages and population, and {"or the
existence within this group of various people with
small private means l)ut no occupation, the writer
computes its income in 1905 at £247,000,000, being
at the rate of a little over 30.S'. per week per person
occupied. (In Riches and Poverttj, p. 18, the

8 THE NATIONAL INCOME

respective Hgures are taken at 3,000,000 and
£225,000,000.)

These three groups, comprising' what is known
as the •' Masses, " are set out at the foot of Table A.
Their 9 million families include 18 million workers,
and their income aggregates £1,022,000,000, being
an average of £113 per family. This figure is
slightly higher tlian is admitted by any of the
Socialist statisticians, but in this connection attention
may be drawn to the following, w^ritten in 1909 : —

" The expenditure in poor relief in England and
Wales is about fourteen millions. The cost of
old-age pensions must be placed at another eight
millions. In addition to this, there is a very large
outlay by charitable institutions. In London alone,
according to the latest issue of the ' Annual Charities
Register,' an income of over ten millions is annually
expended by charitable agencies. If we allow half
as much more for the rest of the country, nearly
forty millions is, in one way or another, being ex-
pended on the poor."

In addition to this there is 20 millions, raised by
taxation, applied to the education of the children
of the Masses, thus bringing the total up to 60
millions annually.

The same total is mentioned by the Poor I^aw
Commission (Cd. 4499, p. 52), as "our annual
expenditure upon poor relief, education, and public
health."

It is safe to compute that tlie bulk of this amount,
say 50 millions, is in one form or another given
by the Classes to the Masses. It should thus be
deducted from the income of the former, and added
to the income of the latter, in computing what is
actually enjoyed by both.

CHAPTER II

THE PROPORTION OF POOR PEOPLE

The nintli volume of Mr. Booth's work Life and
Labour of the People contains, on p. 427, the
following : —

" The result of all our inquiries makes it reasonably
sure that one-third of the population are on or about
the line of poverty, or are below it, having at most
an income which, one time with another, averages
twenty-one shillings or twenty-two shillings for a
small family (or up to twenty-five or twenty-six for
one of larger size), and in many cases falling much
below this level."

On p. 21, vol. ii. of his work, Mr. Booth classifies as
follows the population of London (1887-92) : —

Inmates of Institutions (Workhouses,

Persons.

Per cent.

Hospibils, etc.)

99,830

2-32

Very jioor .....

I'oor ......

Working (lass (comfortable) .

354,444

938,293
. 2,166,503

2178)
50-28

.Mifldlii and f jijkt Classes

749,930

17-40

4,309,000

too- 00

Although tliis table ni.'iy represent fairly enough tlie
proportions of the Poor and Middle Chiss resident in

10 THE PROPORTION OF POOR PEOPLE

London, it is not necessarily correct as applying to
the whole of the United Kinp^dom. On the writer's
computation, the Middle and Upper Classes comprise
between them not 17 but 10 per cent, of the entire
population of the country, and the " comfortable "
working class comprises not 50 but 65 per cent.
( Table ^C).

Sir Robert Giffen's estimate as to the number of
the Poor, i.e. of the class where the men earn less
than 20 shillings per week, is 25 per cent, of the
total population. A considerable proportion of them
are agricultural labourers. (Cd. 7063, 1., Answers 6943
and 8173.)

Whether its true percentage be 30 or 25, there
can be no. doubt as to the existence in this country
of a large number of the poor. They are frequently
referred to as the " twelve millions of people on the
verge of hunger," having been so described by the
late Sir H. Campbell- Bannerman, and if this hgure
be correct they comprise about 2,500,000 ftirailies.
That is to say, they include the aforesaid i million
families who are known as the ''residuum" or "sub-
merged tenth," together with the ij million families
who are worst off among the next higher class. The
poor condition of these 2^ million families is the
chief text of Socialism, it being assumed that their
poverty is due entirely to our present social system,
and not — as in many cases is the fact — to their own
incompetence or want of character. We can describe
them as Unskilled, or Unfortunate, or Unemploy-
able, and will reckon their annual income at the
round figure of 100 millions sterling, being an aver-
age of 15.S'. 6d. per week or £40 a year, per family.
(Cd. 7063, I., Answer 6943.)

'J'hat so large a number of families can and do live,

THE PROPORTION OF POOR PEOPLE ii

upon an income so small, is to some extent accounted
for as follows : —

"Joint households are perhaps the most distin-
guishing feature of domestic life among the poor.
There are few homes in which no trace of this system
is to be found. It is partly to insufficient recognition
of this truth that we owe many newspaper facts as
to wages received and rent paid in certain districts,
and the simply impossible margin left for food, clothes
and firing.'

This quotation is from p. 52 of Miss Loane's book
From Their Point of View. As a district nurse she
had special opportunities of observation on this point.

CHAPTER III
THE DIVISIOxN OF INCOME

Upon the foregoing basis the figures given in
Table A can be rearranged as shown in Table B.
R. stands for the Rich Class, the " upper ten " thou-
sand, with incomes above £5,000 a year. U.M. is
the Upper JNIiddle Class, with £700 to £5,000, and
L.M. the Lower Middle Class, with £160 to £700 per
family. A. is the Artisan group with £52 to £160
per family, and U. is the Unskilled.

The term Artisan is liere used in its dictionary
sense, to indicate " one skilled in any art or trade."
The group so named, in Table B, thus comprises
not only the 14,000,000 people shown in Table A
to be occupied in Handwork, but also the 3,000,000
shown in the same Table as occupied in Headwork,
say 17,000,000 workers in all. It should be pointed
out that the distinction between these two kinds of
work may be ^•ery marked or very slight, according
to circumstances. Thus a navvy who toils with pick
and shovel is undoubtedly a handworker, while the
classical master in a small school is clearly a head-
worker. But it would be quite possible for a clerk,
engaged in the merely routine work of posting ledgers,
to live less by the use of his brains than many of the

expert craftsmen who produce artistic triumphs in

THE DIVISION OF INCOME 13

wood and metal. In our Artisan group, which has
been so named because the skilled handworkers form
the largest portion of it, there are included all these
grades of efficient headwork and handwork, in so far
as they represent family incomes between £1 and £3
per week.

The whole classification, in Table B, rests indeed
solely on the basis of income, and takes no count
of the extent to which the different classes overlap
socially. For instance, there are plenty of people,
by education and environment purely Middle Class,
but with less than £160 per annum, who are here
comprised among the Artisans.

In all these groups, except the poorest, there are
included a certain number of persons living entirely
or partly upon their private means. Many of these
are women, as shown by the fact that in 1904-5
more than half of the 95,000 claim for repayment as
abatement, upon incomes between £160 and £700,
were made by widows and spinsters. (Blue Book 365,

At first sight it may seem surprising, in view of
the comparati\'ely low wages received by some of
the Artisan class, that their average family income
should be as high as £142 per annum, or over
54 shillings per week. Tlie explanation is twofold.
In tlie first place it must be remembered that tliis
class does not include any of the 2,500,000 families
who constitute tiie unskilled or unfortunate " poor"
<jf this country, while on the other hand it docs
include a great many people whose incomes are
close up to £160 per anrunn, and sometimes more
than that sum. For instance, it was estimated twelve
years ago that there were at least 180,000 first-class
workmen in this country who earned more than

14 THE DIVISION OF INCOME

£3 per week, but nevertheless paid no income
tax.

In the second place, it must be observed that we
are here dealing, not with individual incomes, but
with family incomes. It frequently happens that
there are two or more wage-earners living together,
or forming one family though living separately,
whose aggregate incomes amoimt to a very fair
sum. For instance, a father having £2 per week,
with two daughters out in domestic service, each
receiving £25 a year in wages and also her keep,
must be reckoned as possessing a family income of
about £200 a year. As there were in 1901 no less
than 1,641,154 female domestic indoor servants in
the United Kingdom (Cd. 2174, p. 272), receiving
between them each year a total effective income of
about £82,000,0000 (Cd. 7063, I., Answer 6907), their
earnings are of considerable importance.

In many other ways the purse of a workman's
family is often swelled by contributions from its
junior members. Miss Loane gives in one of
her books {The Queen's Poor, pp. 155-62) some
typical specimens of these " composite " incomes.
Mr. G. R. Sims, another authority on the condition
of the Masses in this country, has pointed out that
it is by no means uncommon, in certain industries
where the rates of pay are high, to find artisan
families, each comprising several skilled and un-
skilled wage-earners, whose aggregate income is
£300 or £400 a year, or even more. He writes : —

" In the Midlands and in Lancashire and Yorkshire
there are many working-class homes where five and
six pounds a week is spent on food alone. In
Lancashire I have known the weekly income of
one family, paying eight shillings a week rent,

THE DIVISION OF INCOME 15

amount to as much as twelve pounds. In the
JMidlands I have known a working-class family,
living in an eight-shilling-a-week house, have duck
and green peas and asparagus when these things
were expensive luxuries. The whole family were
employed in a local industry. All were earning,
and the combined savings made up a sum which
permitted the keeping of a table utterly beyond
the means of the poor professional class, the small
traders, and the middle-class people with a small
income" {Referee, July 18, 1909).

Similar revelations, as to the aggregate family wages
of the better-class Handworkers, come to light when
compensation cases are fought in the Courts. Such
a one recently occurred in London, when it tran-
spired that the husband earned £2 is. a week, with
an allowance of 5*. a week for a house, while one
son earned £2 3.S'. 6d. and the other £2 6,9. yd. a
week, making a total income of £6 16,?. id. per week.
This equals £350 per annum, which is more than
three times the average salary of the ordinary
commercial clerk.

Another help towards building up a sufficient
aggregate family income, among the poorer classes,
is the letting of lodgings, which is in effect a form
of "joint household." Over the whole country the
amount so earned nmst be very considerable, but
it does not appear, however, in any of tlie oHicial
estimates of the working-class income, since these
are all based upon wages only. Often the lodger
" pays the rent, ' and it is more than prol)able that
by his aid there is l)ridgcd over in many cases the
"impossible margin" referred to by Miss Loane
(see p. II).

It is not only in the labour class that "com-

l6 THE DIVISION OF INCOME

posite " incomes are to be found. Amongst people
who do not work witli tlieir hands, it often happens
that a hoiiseliolder's wife adds to the family resources
by taking in lodgers, or that his brothers, or sons,
or daughters contribute by their personal earnings
to produce a household purse of considerably more
than £i6o a year, on which, nevertheless, no income
tax is payable because each separate contribution is
less than that amount. It is no exaggeration to
say that there are thousands of such households,
mainly in the suburbs of large towns, which are
maintained in very considerable comfort by com-
posite incomes of this kind. In point of fact, these
households comprise Lower Middle Class people.
From the point of view of mere statistics, their
income-earners, taken separately, often appear quite
incorrectly as " poor " people.

On the basis of what is stated in the preceding
four paragraphs, we are quite justified in asserting
that many of the popular estimates as to the
condition of the Masses are misleading, because
they treat each worker as an isolated individual,
and as if he or she were the unaided breadwinner
for the family to which he or she belongs. The
error of this may be seen from the fact, already
mentioned, that in 1901 the rmmber of those " taking
part in the work of the community," exclusive of
married women engaged in domestic work, was
18,261,146 persons, being men, women, boys, and
girls. As the number of families at that time was
about 9,500,000, it follows that on an average there
were about two workers in each family. Taking
the country as a whole, it is therefore correct to
say that the average family income is twice the
average income of the individual worker.

THE DIVISION OF INCOME 17

This proportion of workers to families naturally
varies according to monetary circumstances. In the
Rich and Upper JNIiddle Classes, it is probably safe
to reckon on an average that there is one income-
earner to each family. Sometimes of course there
are more, but on the other hand there are various
famihes, either living on tlieir own means or supported
by well-to-do relations, which contain no income-
earning members. Among the Lower Middle Class,
comprising 800,000 income-tax payers, the need for
augmenting the resources of some families results in
contributions from their junior members, and in
Table A the class in question has been reckoned
to contain only 700,000 families. Further down
in the social scale this need becomes greater, and
in the same Table the Non-labour Artisan Class is
allowed l-| workers per family, while the I^abour
Artisan Class has more than 2 workers per family.
It is especially in this last-named class that the
joint households and composite incomes, already
mentioned, so frequently help to improve the
conditions of the family.

CHAPTER IV

SOCIALIST ESTIMATES OF INCOME

The estimate set out in Table B differs consider-
ably from certain other estimates which have been
made of our present distribution of income. One of
these, much quoted by Socialists, is given below in
comparison with the writer's figures. It is taken
from Facts for Socialists, a tract issued by the Fabian
Society. The Table L, referred to in the second
column, is the one which appears on p. 153 hereof.

Facts f 01' Socialists. Tables B and 1,.

Classes : £ £

Rent and Interest . . 650,000,000 300,000,000

Profits and Salaries . . 460,000,000 378,000,000

Income not distributed . 50,000,000

1,110,000,000 728,000,000

Masses ..... 690,000,000 1,022,000,000

1,800,000,000 1,750,000,000

The first figure here, 650 millions, is obviously
a gross exaggeration. The total of capital in land,
houses, trade, etc., owned by the Classes is about
10,000 millions (see Table K), and upon this the
alleged 650 millions would represent an annual return
of 6\ per cent. — a percentage more than twice as
much as the average yield upon invested capital in
this country ! In the same Socialist estimate the

SOCIALIST ESTIIVIATES OF INCOME 19

" income of the manual-labour class " is put down
at 690 millions, which is not much below the Board
of Trade estimate (Cd. 176 1, p. 361) of 700 to 750
millions as the wages of British " workpeople "
in 1903. But this refers only to those who live
at some trade by the use of their hands, and conveys
the utterly false impression that every one who lives
in any other way is one of the Classes and therefore
a " prosperous " person. As already pointed out,
there are 3,000,000 workers among our poorer
population, with incomes less than £160 a year, who
are not manual labourers. They belong to the
Artisan group, as defined above, and they and their
income of 247 millions should, in the Facts for
Socialists estimate, be taken from the Classes and
placed among the ]\Iasses.

Another estimate, also from a Socialist source
{Riches and Poverti), p. 42), given below, very
properly avoids this blunder of treating only manual
labourers as constituting the Masses. The figures
in small type have been added by the writer to show
the average annual income, per family of four and
a half persons, in each group.

Ricliei and 1\

overty.

Table B.

Clakhks :

'J'otal
Income.

Average
I'.imily
Incume.

Total
Income.

Average
Family
iDconie.

Rich and Upper Middle

Class

585,000,000

1,950

428,000,000

'.4-'7

Lower Middle Class

245,000,000

35°

250,000,000

357

Iiiconie not distributed

—

50,000,000

Massks :

Artisan and ('iiskillcd

880,000,000
1,710,000,000

1 ,022,000,000

1,750,000,000

An important point in dispute here is the first
figure of 585 milMons. It is based upon the Income

20 SOCIALIST ESTIMATES OF INCOME

Tax figures, to which there have been added,
by the author of Riches and Poverty, no less
than 98 niilhons in respect of income which he
thinks has escaped taxation ! This, and other
points relating to his estimate, will be taken up
later on.

Meantime it may be remarked that according to
the estimate from Riches and Povcrly, on the
corrected basis of 4J persons per family, the average
family income of the Masses works out at £98,
being more than twice as much as the average
annual pay (as estimated by its aiithor on p. 26
of that book) of each individual manual worker.
If the 2,500,000 Unskilled families, at £40 per
annum, be separated out, the average income of the
remainder will appear at £120 per family. Thus,
even upon the basis of this Socialist estimate, the
6,500,000 Artisan families in this country, the really
efficient wage-earners, have an average income of
£2 6*. per week — an amount which is consistent with
JNIr. Booth's description of their position as being
" comfortable."

The writer believes that this figure is understated,
and estimates that the family income of the Artisan
class averages fully £142 per annum, or £2 14.S'. per
week, as shown in Table 1?.

CHAPTER V

THE NATIOVS SAVINGS

The expenditure of the income of the United
Kingdom, in the year igo2, has been estimated as
follows {Economic Inquiries and Studies, Sir R.
Giffen, vol. ii., p. 383) :—

Food and Drink ..... 468,000,000

Dress 182,000,000

House Rent 145,000,000

Coal, LifrlitinfT, ^^'ater, etc. . , . 78,000,000

Army and Navy ..... 70,000,000
Civil Administration and Post Office (less

Education) .... 38,000,000
Local Government Services (less Education,

Gas, Water, etc.) .... 75,000,000

Eflucation 30,000,000

Locomotion 30,000,000

Literature, Churcli, and .Vmusements . 70,000,000

C:ost of I)istril)ution .... 200,000,000
Profeisional and Domestic Services, not

comprised in the foregoing, say . 100,000,000

1,486,000,000 85 %
Amount spent on services resulting in

Permanent \\''orks (Investments), say 264,000,000 15 %

Income .... 1,750,000,000

According to this we spend <S5 per cent, of our
annual income in supj)lying om- own needs for
su.stenancc, clothing, sliclter, government, transit,
personal improvement, and so on. Outlay of this

22 THE NATION'S SAVINGS

kind is by accountants termed " revenue expendi-
ture," and what we enjoy in return for it is consumed
by us in maintaining ourselves year by year.

The remaining 15 per cent., say in round figures
£250,000,000, is spent in an entirely different way.
The people who save this amount do so expressly
to obtain, in return for their expenditure of it,
certain newly-created property which shall be avail-
able, not for their enjoyment in its present con-
sumption, but for its permanent and repeated use
in promoting and increasing future industry. Outlay
of this character is known as " capital expenditure,"
and the owners of the property so acquired look for-
ward to employing it as described in Chapter XV.
The steady recurrence of this addition to our accu-
mulated wealth affords highl}^ satisfactory evidence
that each year we, as a nation, create more than
we consume.

The vital difference between these two kinds of
expenditure can be illustrated by a simple example.
Suppose that R. is a man who drinks champagne,
and that in a given number of years his outlay upon
this luxury has amounted to £630. C, on the other
hand, abjures champagne, and by so doing he is
able to save out of his income an amount of £630,
which he invests in a railway company constructing
a new line. In each case the outlay is the same,
and out of both expenditures the portion paid in
salaries and wages is also more or less the same.
But there is a wonderful difference in the respective
results. The effect of R.'s action is that the money
is used once, the wine is consumed, and that is
all. The community derives no permanent gain
from the outlay.

The effect of C.'s action is utterly different. The

THE NATION'S SAVINGS 23

money is used once, as in the other case, but its
result is to create something which did not exist
before, i.e. part of a new railway, involving not
only the present and temporary work of constructing
it, but also the future and permanent work of
running it (if it be successful). What has been
brought into being is fresh capital, and this in turn
will create something else, i.e. a fresh personal in-
come amounting on an average to £100 per annum.
The manner in which this new yearly income will
be shared, on an average based upon the commerce of
the whole country, can be approximately estimated
as shown in Diagram Number Five (p. 159). C. or
his children will enjoy £12 of it, the railway officials
£17, and the wage-earners £57. Besides this an
amount of £14, saved partly by him and partly
by them, will be put aside each year as further
capital for yet more railways or similar permanent
works.

Clearly the revenue expenditure by R. has been
merely of single and temporary service to the com-
munity, while the capital expenditure by C. has
given birth to new wealth which will be used again
and again in the permanent service of the com-
munity. The importance of encouraging the latter
class of expenditure will be commented upon in
Chapter XIX.

There are no statistics to show how nnich of
the aforesaid 250 millions is being applied to capital
expenditure by each group of the comnumity, so
that we can make only a rough estimate. 'I\) !)cgin
with, one-fifth of this amount (see details on p. 48)
is locked up every year, the 50 millions in question
being income which is converted into capital by
investment, and not distributed at all. Probably

24 THE NATION'S SAVINGS

nearly all of it belongs to the Rich and Middle
Classes.

Then we have to consider the remaining 200
millions, annually distributed as income, and by
thrift turned into capital. Out of this the Artisan
Class has up to now saved an amount variously
reckoned from 450 milhons {Riches and Poverty^
p. 49) to 1,000 milhons ("The Wealth of the
Workers," Coiitcmporarif Review, August, 1907).
For several reasons, which need not be detailed,
the latter figure is here adopted, and on the assump-
tion that most of this amount has been put by
during the last two generations, we can calculate
that it is now being increased yearly by at least
22 millions, if not more. This represents an annual
" putting by " of about 2 J per cent, of the present
Artisan income. In the Lower JNliddle Class the
difficulty in saving is notoriously great, by reason
of the cost of " keeping up appearances," and pro-
bably 8 per cent, of the income, say 20 millions
a year, is a full estimate of what is put by. The
remainder, 158 millions, then represents the annual
savings of the Rich and Upper Middle Classes.
This amount, although it is more than one-third
of the income actually received by those two classes,
cannot be considered unduly large, when it is re-
membered how many wealthy and well-to-do men,
either from their business needing the investment
of their savings for its development, or from the
desire to leave their children well provided for, or
from a life-long habit of economy, spend compara-
tively little upon themselves.

Our figures can now be rearranged, so as to deal
only with the income of £1,500,000,000 actually ex-
pended each year, as shown in Tables C and D, and

THE NATION'S SAVINGS 25

in Diagram Number One (p. 155). It will be noticed
that the Rich enjoy 5 per cent., while the Middle
and Artisan Classes together enjoy 88 per cent., of
the total income spent. The Artisan Class by itself
forms 65 per cent, of the population, and enjoys
60 per cent, of the income spent, so that its share
of the country's expenditure is very nearly in pro-
portion to its numbers. Table D sliows that the
" ^Masses," in the aggregate, spend upon themselves
twice as much as is spent by the " Classes." On
p. 124 there will be found a reference to the fact
that the bulk of the people in this country are
neither rich nor poor.

In the preceding paragraphs attention is drawn
to the important distinction between " income re-
ceived " and " income enjoyed." A man earning
a salary, say of £1,000 a year, actually receives the
whole of that amount. When he spends it all on
his sustenance, clothing, shelter, etc., he enjoys his
entire income. But when he saves £200 of it, he
puts that portion aside for future use as capital,
and the remaining portion which he enjoys as in-
come is only £800. This vital distinction, between
the receiving and enjoying of income, is entirely
ignored by Socialists, their practice being to treat
the entire income of the Classes as available for
plunder by the Masses. A moment's reflection will
show that plundering in this way, " up to the hilt,"
could never come about, at any rate under lionest
Socialism, since a portion of our income must be
saved every year to create new capital for the pur-
pose of providing work for our steady increase of
population. Therefore all schemes for "dividing
up," whicli treat savings as distributable, are wrong.

From 'I'ables A and C an interesting conclusion can

26 THE NATION'S SAVINGS

be obtained as to the proportions of income enjoyed
under another grouping of the contributors to the
economic welfare of the country, thus : —

Heailworkers.

Handworkers.

Number of Persons

1 3,000,000

30,000,000

Number of Families

3,000,000

7,000,000

Gross Income

£975,000,000

£775,000,000

Savings .....

235,000,000

15,000,000

Annual Revenue Expenditure

£740,000,000

£760,000,000

Average enjoyed per family

£247

£109

From this it will be seen that the families con-
tributing the use of their capital, or the work of their
heads, or both, are together 3 millions in number,
being i million of income-taxed families, and 2 mil-
lions of non-labour artisan families. Between them,
they " enjoy " nearly half of the national income
which is spent, i.e. excluding savings. The " labour "
class, skilled and unskilled together, contributing the
work of their hands, " enjoy " the other half. Thus
Capital and Headwork on the one hand, and Labour on
the other, share equally in the aggregate the income
spent every year in the United Kingdom.

CHAPTER VI

THE SURPLUS INCOME OF THE RICH

From Table C some important facts can be brought
to light. Owing largely to much chronicling of the
extravagance of certain wealthy folk, there has arisen
an impression that the surplus income of the rich is
of stupendous proportions, so large, in fact, that its
seizure by the State, and its distribution among the
poorer part of the population, would entirely do away
witli all poverty. A Socialist Member of Parliament
recently said, in relation to the question of unem-
ployment, " All that is needed is money, and that
should come from those bursting bags of unearned
increment which the Government is too timid to
touch." The idea he obviously meant to convey was
that the expropriation of these " bursting bags " would
yield a sum so large as to banish for ever from the
land all fear of hardship or privation.

It is easy to disprove this fallacy. Let us assume
that the Government of this country, by some means
or other, were to reduce all tlic Rich to the level of
the Upper ^Middle Class, and were to divide equally
among the Masses the amount of income so con-
fiscated. Let us also assume that this operation
could by some miracle be carried out without
reducing either the total national income or the

annual saving of 250 millions which is now behig

28 SURPLUS INCOME OF THE RICH

made. The distribution would then be as follows,
the persons formerly ricli being included in the first
group, and the income of the Lower Middle Class

being left

unaltered.

PvXPKNDITURK

IF THKRE VVKRE NO

Rich

Number of
Families.

Income spent
Annually.

New
Income.

Former
Income.

Loss or
Gain per
Family.

UM.

. 300,000

207,000,000

690

L.M.

. 700,000

230,000,000

329

6,500,000

945,000,000

14s

■38

+ 7

2,500,000

118,000,000

+ 7

10,000,000

;{^ 1, 5 00,000,000

A comparison of these figures, with those in
Table C, shows that a State seizure of the surplus
income of the Rich would do really nothing to solve
the problem of poverty. Such a redistribution would
raise the average pay of the Masses by £7 per family
per annum, which is only 2S. 8(1. per family per week,
or about one penny per head per day ! For all
practical purposes it would leave the poor among
them just as badly off as before.

The truth is — though it is not generally realised —
that there are so few rich people, and so many who
are not rich, that the redistribution of the surplus
income of the former would benefit the latter only to
a most trifling extent. Perhaps the best way of
gi-asping what a mere handful there are of the rich,
as compared with the whole nation, is to see how
long it takes to count them. At the rate of one per
second, our 10,000 wealthiest people could be counted
in about two and a half hours, while it would take
more than a year, working eight hours every day,
to count the 10,000,000 people who are heads of
families in the United Kingdom.

SURPLUS INCOME OF THE RICH 29

From the figures just given, it is quite clear that
the estabhshment of " a minimum family income of
£2 per week," which the Socialists hope to bring
about, cannot be secured by attacking the Rich only.
The Middle Class must be attacked also. There are
two ways of attaining this end, and we will examine
them both in turn. The reader, however, may be
warned beforehand as to the result, since the number
of middle-class people, with incomes worth attacking,
is very small. In round figures, only one adult man
in 500 spends more than £2,000 a year, and it is pre-
cisely the rarity of these larger incomes which affords
the best possible argument against their being seized
by the State. If one man is to be despoiled of his
surplus income by 499 others, the share of each of
the despoilers will be only 4 J 9th of that surplus, a
proportion so small as to make the seizure hardly
worth tlie risk of a fight.

CHAPTER VII

INCOME NOT AVAILABLE FOR REDISTRIBUTION

Before proceeding on this inquiry, however, we must
pause to take note of another important point. The
common Sociahst idea, in respect of redistribution, is
based upon a fundamental bhmder. It consists in their
behef that the spohation of the Classes would leave
unaltered, for purposes of redistribution, the amount
at which we now compute the national income. This
belief is wrong, for two reasons.

In the first place, it is utterly unlikely that the
Rich and Middle Classes, the people now in active
control of our country's commerce, would continue
to work as they now do, and to make and save
money, when the result of their exertions would be
that the more they made, the more would be taken
from them by a Socialist Government. Should any
one doubt this, let him imagine what would happen
in a Socialist cricket club, where the best batsmen,
on making a good score, had most of their runs taken
fi'om tliem, for addition to the score of the worst
batsmen in the team. Can any sane person seriously
believe that in such circumstances the best batsmen
would take the trouble to score any runs beyond the
maxinmm permitted to them by this new and penal
kind of cricket ? Further, can it be doubted that

NON-DISTRIBUTABLE INCOME 31

such a redistribution of the runs, besides reducing the
total number of runs scored, would also have a
terribly bad effect upon the quality of the play of
the whole team ?

In the second place, it has to be remembered that
the aggregate income of the Classes, as at present
computed, would not all be available for purposes of
redistribution. A considerable portion of this income
is now counted twice over, and some of it many
times over, so that in the process of " dividing up "
the total to be apportioned, on the basis of the
figures shown in Table C, would prove less than
£1,500,000,000. On this point Mr. Mallock writes
thus : —

"A great London doctor receives, in the South of
France, a fee of £1,200 for coming out to pay one
visit to a patient. The patient pays income tax on
this £1,200, and the physician pays income tax on
the same sum. If the physician had occasion to
pay £500 to a lawj^er, a part of this sum would pay
income tax a third time, and would count three times
over in the total assessed to income tax. Now the
£1,200 and the £500 were paid no doubt in respect
of a certain value received : but the values thus
received, thougli real in relation to the physician and
the lawyer, are absolutely incapable of being divided
and redistributed. In the same way tlie profits of all
distributive dealers, which result from the ability with
wliich tliey assemble and bring to the notice of their
patrons objects of art and luxury, practically pay
income tax twice over, in the sense that the value of
the services wliich such dealers render would disappear
if any redistribution of wealth did away (as it would)
with the circumstances which alone make such services
possible. The same thing holds good of all exceptional
services, which command fancy prices only because
rich men run up the price of them by competition."

32 NON-DISTRIBUTABLE INCOME

A good illustration of this point may be found
in the case of a prima donna, who does as much
siu<>ing as her voice can stand. She earns, let us say,
£10,000, and spends £4,000 of it in rent, carriage
hire, hotel hills, lady's maid, and various other ex-
penses— all costly because she can afford exceptional
prices. The aggregate of these amounts, say £14,000,
duly figures as part of the national income. But
after a Socialistic redistribution there would be no
rich people to pay fancy prices for seats at the opera,
while she in her turn could not sing to twenty or
thirty times as many people as she does now, since
no opera house could be built large enough to hold
them, nor could they hear in it if it were. In this
way her income, plus what she spends out of it,
might easily fall to one-twentieth or one-thirtieth of
the aforesaid £14,000.

In the same way a barrister, with his time fully
occupied and earning a large sum each year, now
spends an appreciable portion of his income upon his
chauffeur, his gardener, his valet, and so on. But
under Socialism he could not earn any such income,
because no one could afford to pay him (as now) fees
at 100 guineas a day, and being already fully busy
he could not make up for his much lower fees by
attending to twenty or thirty times as many cases as
he does now. This being so, his chauffeur and other
luxuries would have to go, and what he formerly
paid them would no longer be computed as part
of his income as well as the whole of theirs.

In humbler walks of life the same kind of thing
would occur. For instance, our female domestic
servants earn each year, in wages and keep, about
£82,000,000 (p. 14). This sum is now counted
twice over, once as part of the income of the em-

NON-DISTRIBUTABLE INCOME 33

ployers of those servants, and a second time as the
whole income of the servants themselves. But after
a Socialistic redistribution hardly any one could
afford to keep a domestic servant, as the average
income of the richest class would be only about £230
a year (see Table F). The servants themselves
might, as factory hands, earn as much as they do
now, but then it would not come to them out of the
income of a private employer, and so would not be
counted, as it is now, twice over. Indeed the same
argument applies to nearly all forms of personal
service, because in that class of work the servant,
though doing most useful work in cooking, cleaning,
tending children, and so on, does not actually produce
anything.

In his Essays in Finance, Second Series, pp. 351-3,
Sir R. Giffen comments emphatically upon this same
point, and shows that Income is by no means identical
with Production in the sense understood by Socialist
agitators.

In 1886 Professor I^eone Levi estimated at
£100,000,000 that portion of the income of the
United Kingdom thus annually counted twice over.
To-day the amount is doubtless larger, but to prevent
any charge of overstatement we will adopt the sum
in question as applying at the present time. On this
basis the amount of the national spendable income,
available for a redistribution, is not £1,500,000,000,
but £1,400,000,000. This deduction of 100 millions
averages £10 for each family in the Kingdom.

The fact, that a deduction of tliis kind has to be
made, gives a good indication as to the position of
the rich man in our economic system. It is physically
impossible for him to devote the whole of his large
income entirely to himself, for he soon gets to the

34 NON-DISTRIBUTABLE INCOME

limit of wliat lie can eat, drink, and wear. Indeed,
the whole of his expenditure, on his enjoyments as
well as his needs, has in some form or other to be
made either in promoting trade, or in employing
service. There is no other way in which he can
dispose of his income. With one hand he receives
liis interest, rent and profit, and with the other he
distributes the like amount (less his savings) for rent,
food, clothing, service, estate improvement, insurance,
taxes, and so on. In large measure he is simply an
instrument of exchange between two sets of industrial
people, and it is because he occupies this position
(in company with other rich and well-to-do folk) that
we have to deduct the aforesaid loo millions in com-
puting what our national income would be if he no
longer acted as a go-between, i.e. if a large part of
what he now handles were to pass direct, without his
intervention, from the people from whom he now
receives it to the people to whom he now pays it.

CHAPTER VIII

EQUAL REDISTRIBUTION OF INCOME

The most obvious way of redressing inequalities,
and the one likely to appeal to those who have made
but little study of the subject, is to redistribute the
income equally all round. On this basis the result
upon the different groups of the population would be
as indicated in Table E.

Under this arrangement, the income enjoyed by
the Classes would drop from 500 millions to 140
millions, but as they are mostly " drones " and
•• useless persons," according to Socialism, it would
not matter what happened to them. The Unskilled
and Unemployables would of course fare admirably.

The Artisans, however, would stand to gain very
httle in proportion to the risk they ran in supporting
this revolutionary change. Equal distribution, could
it ever come about, would raise their average pay
from £138 to £140 per annum. This is an increase
of only about 9^/. per family per week, or a little
over one fiulltin^ per Itcdd pc?' (fay. The more
capable families among them, many of whom now
earn iniicli more than £140 per annum, especially
when there are several workers in one family, would
lose considerably by the change.

At first sight it seems impossible that a *' share and

36 EQUAL REDISTRIBUTION

share alike " should raise the average income of the
Artisan Chiss by so httle, but the reason is simple
enough. The aforesaid annual saving of 250 millions
is at present made almost entirely by the Rich and
Middle Classes. But, under an equal distribution,
every one would have to contribute to it, and on an
average it amounts annually to £25 per family.
Besides this, there is a further deduction of £10
to be made, as stated on p. 33. Thus the average
amount remaining as '' spendable " would be reduced
from £175 per family, as shown in Table B, to £140
per family, as shown in Table E.

It is practically certain that the Artisan Class, who
form 65 per cent, of the population, and who, with
the Rich and Middle Classes, control three-fourths of
the Parliamentary votes, would never for a moment
tolerate an equal division of income all round. Their
own wages have risen by 50 per cent, during the last
thirty-eight years {Eic/tes and Pove7^ty, p. 311), and are
likely to continue rising, since capital is increasing in
this country more than twice as fast as population,
and all fresh capital requires fresh labour to operate
it. It would be poor policy on the part of the
Artisans to do anything likely to jeopardise a con-
tinuance of this rise in their wages, merely to augment
their immediate pay by about i per cent., and at the
same time to allow the pay of the Unskilled Class to
leap up from £40 to £140, an increase of 250 per
cent. !

Besides, the obvious injustice of such a change
would undoubtedly appeal to them. There is an
aristocracy of craftsmanship, as well as of birth or
brains. The expert miner or shipwright, who now
makes £1 per day by reason of his superior skill, would
certainly resent having to admit, on equal wage

EQUAL REDISTRIBUTION 37

terms, his own labourers who now earn only about
one-fifth of that sum. There are similar contrasts
between the trained engineer who occupies the
responsible position of locomotive driver and the
man who merely washes down the railway carriages,
between the skilled compositor and the casual
labourer in a printing works, between the artist in
wood-carving and the man in the yard outside who
merely nails up packing-cases, and so on. Similarly
the responsible clerk, the University-trained school-
master, the trained civil servant, the rising actor, the
enterprising shopkeeper, and many other brain-workers
now earning nearly £160 a year, would strongly
object to the raising to their level of those in their
own class who are admittedly their hiferiors in ability.
It is against human nature to expect that a skilled
majority would let practically all the benefit of a
new social order be taken by an unskilled minority.
Indeed the most modern Socialism recognizes this
principle, for it urges merely the transfer of capital
to the State, and would make tlie remuneration of
Headwork and Labour entirely in accordance with
the work done, i.e. varying in proportion to merit.

.Si>Klr^.s

CHAPTER IX

(4UADED REDISTRIBUTION OF INCOME

Gkaxtinc; then that in the perfect Socialist State
the different capacities of men are to be recognized
by different rates of pay, the question arises as to
how to divide our national income accordingly.
The minimum is to be £2 per family per week, and
this determines the least sum to be taken by the
Unskilled Class. It amounts to £260,000,000, to
be divided annually amongst the 2,500,000 families
of this class.

Then provision has to be made for the State
"directors of industry," the people to do the work
now undertaken in the main by the Middle Class.
No one knows how many of these directors there
would be, but it has been found by experience
that in countries ruled by " paternal Governments "
the tendency is always for officials to become more
and more numerous. In France, for instance, it
is said that there are already 900,000 of them.
Taking tlie modest estimate of one '* director " to
each eiglitcen '* State employees," and assuming
that as at present there would be 19,000,000 persons
occupied, then there A\iould be at least 1,000,000
officials in the British Socialist State. The income
to be allowed to these functionaries would obviously

GRADED REDISTRIBUTION 39

be the amount left after the Unskilled and the
Artisans had been provided for, and it may be
surmised that the apportionment would be some-
what as follows.

Out of the total distributable income of 1,400
millions, an amount of 260 millions has to be set
aside for the Unskilled Class. Then it might reason-
aby be decided that the Artisan Class should receive
as wages exactly what they would take under an
equal redistribution of income, i.e. an average of
£140 per annum, as shown in Table E, to each of
the 6,500,000 families in that class. This, a fair
democratic proportion, would absorb 910 millions.
There would then remain 230 millions as income
for the 1,000,000 families of the Official Class, which
works out at an average of £4 86'. 6d. per family
per week, being a little more than half as much
again per head as the Artisan Class receives. The
result of such a redistribution would be as shown in
Table F, wherein the first group, marked O, repre-
sents the Official Directors of Industry.

Here we reach, as far as the Artisan Class is
concerned, a result practically the same as is shown
in Table C. We are thus forced to the important
conclusion that a redistribution of the national
*' spendable " income would he of no advantage
xvhatevcr to the Artisan Class. If the " twelve
milHons on the verge of starvation " were to be
uplifted to a family income of not less than £2 per
week, by diverting to them a proportion of what
is now taken by the Itich and Middle Classes, the
change would afl'cct only the top aiid bottom grades
of society. The Artisan Class, the efficient rank
and file of our industrial army, would benefit
practically nothing by it.

40 GRADED REDISTRIBUTION

At present that class does spend 900 millions,
and upon a redistribution it might (or might not)
get the amoimt increased to 910 millions — an in-
crease of about I per cent. This is in effect
no increase at all, and does not offer much induce-
ment to them to support Socialism. They would
certainly do better to continue to support our
present capitalistic system which, between 1850 and
1907, has increased wages (see p. 6) by 81 per cent.

It is merely a coincidence that the average income
spent, or to be spent, by the Artisan Class works
out at practically the same figure in Tables C, E,
and F. So close a result was not by any means
anticipated when these tables were being prepared.
The last one, Table G, may be open to criticism on
the ground that too much has been allowed to the
Official Class, but it should not be forgotten that
under Socialism the members of this class would
be all-powerful. They would be the sole controllers
of over £11,000,000,000 of capital and the sole
distributors of £1,400,000,000 of annual revenue.
AVithout their assent and help, no artisan or labourer
could lift a finger to earn his living, and just as
they would fix wages so they could fix their own
salaries. As Spencer points out {Man v. The State,
p. 29) :—

" A comparatively small body of officials, coherent,
having common interests, and acting under central
authority, has an immense advantage over an in-
coherent public which has no settled policy, and can
be brought to act unitedly only under strong pro-
vocation. Hence an organization of officials, once
passing a certain stage of growth, becomes less and
less resistible : as we see in the bureaucracies of the
Continent."

GRADED REDISTRIBUTION 41

The despotic power of a million Socialist officials,
mostly holding their positions for life, would assuredly
be equal to keeping their own salaries as high as
possible, and it may well be believed that they
would take for themselves at least the 230 millions
named in Table F.

The conclusion then is unavoidable that — so long
as the Unskilled Class are to take not less tlian £2
per family per week — the Artisan Class of this country
have nothing to gain by promoting Socialism, and
stand to lose much, not only by the fearful dislocation
and permanent injury of trade it would cause, but
also by the hea\ y fall in British wages which w^ould
inevitably follow (see Chapter XIII.) from the estab-
lishment of European International Socialism. The
only persons who could possibly benefit by it would
be the Unskilled Class, that 25 per cent, of our
population whose work, as measured by the low
wages paid to them, is esteemed by the community
to be the least useful to the country. It is in
their interest, and theirs alone, that we are urged
to run the ship of State on the rocks of Socialism.

It would be out of place here to discuss the ex-
pediency of assisting this class by what is popularly
termed *' social reform," i.e. by Acts of Parliament
designed to give them a better income without any
demand at the same time for greater economic effi-
ciency on their part. Many people urge this course,
with much earnestness, on purely humanitarian
grounds. Others condemn it, as being likely to
perpetuate and intensify tlie very misery it is in-
tended to reheve. However this may be, the one
fact outstanding, wliich cannot ho. questioned by
anybody, is that wliilst 75 per cent, of the population
have made a great advance towards prosperity during

42 GRADED REDISTRIBUTION

tlie last sixty years, 'as shown by Diagram Number
Tliree (p. 157), the remaining 25 per cent, have not
shared in this advance. They have been "left behind,"
under our economic system, because for various
reasons they have failed to profit sufficiently by our
modern methods of wealth production.

Socialism urges that the remedy is to alter the
existing competitive system, which is based upon the
voluntary control of commerce by those who prove
themselves from generation to generation most com-
petent to take such control, and to substitute for it a
practically untried system, which would crush out
the natural instinct of each man to compete with his
fellows in serving the community, and would place
the mastery of commerce under the compulsory
control of an army of officials appointed by a mere
majority vote.

Anti- Socialism, on the other hand, while sympa-
thizing fully with the difficulties of the poor, contends
that the couipetitive system should be rigorously
retained, on the ground that its abolition must
inevitably bring in its train such serious evils, to
the whole community, as would far outweigh any
ultimate gain to the poor among us.

The information contained in the foregoing tables
is brought together in Diagram Number Two (p. 156).
Each of the blocks represents the national annual
income. Every year a portion is cut off this, as
indicated by the dotted lines at the top of each
block, and is put aside (in the form of savings) as
capital to feed future enterprise. The remainder is
now distributed as shown in the block marked
" Table C," and the imaginary proportions in which
it might be redistributed under Socialism are shown
in the other two blocks. In all three cases the pro-

GRADED REDISTRIBUTION 43

portion enjoyed by the Artisan Class, marked with
the letter "A," is practically the same.

The opportunity may here be taken to point out,
once more, that the fictitious redistributions of
income, in Tables E and F, are both based upon the
theory that complete State Socialism could be
reached, and continued, without injury to the present
steady growth of the income per head of our increas-
ing population. It is hardly necessary to remark
that the writer believes this theory to be absolutely
and preposterously false.

CHAPTER X

MIS-STATEMENTS OF INCOME

The figures in Table C may be found useful in
exposing some of the astounding exaggerations,
brought forward by Socialists, as to the proportion
of the national income enjoyed by the rich. One
writer, for example, inquires in the Press as follows : —
"Who would suffer by the State seizing £650,000,000
of annual rent and interest ? A few wealthy land-
owners and capitalists, who do not in the least know
what to do with their money." This statement is
incorrect, in two vital particulars. In tlie first place,
our annual rent and interest amount to barely half
the aforesaid sum. In the second place it will be
seen, from Table B, that the income of the 10,000
richest people in the country, receiving over £5,000
a year each, is less than one-fifth of the sum in
question. As a matter of fact, the sufferers by the
seizure of 650 millions would be, not merely a " few "
capitalists, but the whole of the Rich Class, the whole
of the Upper Middle Class, and nearly all the Lower
Middle class. As stated in Table C, the aggregate
income received by all these people is only 678
millions, and they save more than a third of it.

Here is another example. A Member of Par-
liament, in a paper included in an official Blue Book

MIS-STATExAIENTS OF INCOME 45

(No. 365, p. 257), referring to the *' larger incomes,"
makes the astonishing statement that " hundreds of
milhons are now wasted every year in luxurious and
harmful expenditure." The gross exaggeration of
this can at once be realized by referring to Table C,
which shows that the annual expenditure of the Rich
is only 70 millions. Nor can the statement be sup-
ported by accusing the Upper Middle Class of wanton
outlay, since their entire annual expenditure is only
200 millions, while their average family expenditure is
but £690 a year, an amount not nearly large enough
to leave any but a small margin for harmful waste.

Then again JNIr. Bernard Shaw is reported to ha\ e
delivered himself recently as follows : —

"In the past, wealth has been distributed in a very
careless manner, and the result was that the 'free list'
of the country w^as very much too big at the present
time. They paid £800,000,000 per year in order that
they might have some very nice people to admire."

A person on the " ft-ee list " being one who gets
free of cost an entertainment for whicli others have
to pay, Mr. Shaw evidently meant his hearers to
believe that the sum of 800 millions is handed over
each year, out of the income of this country, to
people who do nothing in return for that large sum.
This was apparently his playful way of asserting that
the whole of the ricli and middle-class people in this
country, and many of our artisans too, obtain their
income absolutely gratis. The fallacy of this asser-
tion is self-evident if it be restated in the simpler
terms that all people with more than £3 a week
procure their income like a "deadhead" procures his
theatre tickets — for nothing. Which, as Euclid
would say, is absurd.

46 MIS-STATEMENTS OF INCOME

The Socialists do not dispute the amount of the
income of the United Kingdom. In fact they
estimate it at as nmcli as £1,800,000,000 or even
more. Nor do they deny that, out of the consider-
able portion of this saved anrnially, only a small
portion is sav^ed by the artisan section of the popu-
lation. Wliat tliey do, in order to figure as low as
possible the income of the Masses, is to use every
expedient to overstate the income of the Classes.

How this is done can be seen, for example, by
reference to tlie much-quoted Fabian tract Facts
for Socialists. On page 5 thereof the " total pro-
fits " from the ownership of lands, houses, etc., in
1901-2 are put down as £238,231,937, and the reader
is led to suppose that the whole of this sum went
that year into the pockets of the " idle rich." He is
not informed that the Blue Book (Cd. 1717, p. 181),
in giving this figure, mentions on the very same page
that it was " gross income " — a very different thing
from *' net income " — and that no less a sum than
£51,785,724 was deducted for charities, colleges,
hospitals, adjustments on appeal, empty property,
agricultural depression, repairs, etc. Nor is any
mention made of the fact that a large proportion of
house property is leasehold, whereon income tax is
paid upon assessments considerably in excess (see
example giv^en on page 52) of the true net rent.
Further, no mention is made of the fact, amply
vouched for in the Press by various landowners, that
in many cases estates, assessed for and paying taxes
as if they were profitable, yield as a matter of fact no
profit whatev^er to their owners.

The above-named and misleading confusion of two
kinds of income, gross and net, is a fa\ ourite expedient
of Socialist writers. It is just as if one were to

MIS-STATEMENTS OF INCOME 47

assert that the owner of a block of flats, receiving
£1,000 a year rent from his tenants, and having to
pay £300 a year for rates, repairs, etc., had from his
property an "income of £1,000." The fact of course
is that £700 is what he actually has, to spend on him-
self or to save as he may choose, and this smaller
amount is his true income. In connection with this
point the following figures for the United Kingdom
(Cd. 3686, pp. 191-3) are instructive : —

1896-7. 1905-6.

Total Income on which Income Tax wai £ £

received 503,664,630 632,024,746

Add amount abated, and Life Insurance

Premiums deducted . . . 81,724,730 121,392,461

Net Income, over £160 per annum, dis-
closed 585,389,360 753,417,207 N.

Gross Income brought under review of

the Income Tax Department . . 704,741,608 925,184,556 G.

Difference between Gross and Net . 119,352,248 171)767,349

Overstatement if Gross figures l>e

quoted instead of Net . . .20 per cent. 23 per cent.

It is the custom of many Socialists to quote, as in-
dicating the income of the Classes, the figures given
on the line marked G. What they ought to do, if
they really mean to quote correctly, is to use the
much smaller figures on the line marked N.

Any one who wishes to get the most authoritative
opinion on this subject should study the evidence
given before the Select Committee on Income Tax,
in May 1906, by Sir Henry Primrose, the Cliairman
of the Board of Inland Itevenue (Hlue Hook No. 365,
pp. 7 and 8). His estimate, accepted by the Com-
mittee as correct in totjil, was incorporated by them
in paragraph 16 of their report. It is as follows : —

48 MIS-STATEMENTS OF INCOME

Totul Income, for the year ended March 31st, £ £

1905, on wliirli the Tax was received . 612,000,000'

Add amount abated 108,000,000

Add Life Insurance premiums deducted . 8,000,000

1 1 6,000,000

Aggregate income, over £160 per annum, disclosed . . 728,000,000

Deduct estimated amount of income not distributed to

individuals (details below) 50,000,000

Income actually received by 1,100,000 income-tax payers . 678,000,000

His estimated distribution of these 678 millions is set
out in Table A.

The aforesaid deduction of 50 millions is stated by
Sir Henry Primrose to comprise the following items.
The income from the investments of mutual life and
insurance companies, with their reserve funds, say
from 10 to 12 millions a year ; the reserve funds of
companies which are put aside in order to equalize
dividends : the income of municipal property, of
Chancery funds, of Trust funds, of funds set aside to
accumulate pending some contingency : the property
of clubs, institutions and co-operative societies : the
amount of income paid away to foreigners : the
annual value of freehold property in the occupation
of the owner. All these items represent profit which
is earned and taxed, but which, as Mr. Bowley has
described it {Blue Book 365, p. 80), is non-personal
income.

The reply of the Socialists, to the estimate of 678
millions as the income enjoyed by the income-taxed
classes in 1904-5, is that the real amount is much
larger, by reason of evasion in respect of profits
earned in England and of foreign profits escaping the
tax. As already stated, one writer goes so far as to

' This figure was merely an estimate, tlie official return for the year
1904-5 not liaving l»een issued at the time when the Committee was sitting.
The correct figure is £619,328,097 (C'd. 368, p. 191).

MIS-STATEMENTS OF INCOME 49

assert that no less than 98 miUions every year is
received without any income tax being paid upon it.
Such a figure seems incredible. If all the income-
tax payers are to be accused of cheating the Inland
Revenue to this aggregate extent, it follows that on
an average each one of them, every year, conceals
about £100 of his income ! Certainly the authorities,
wdth all their means of information, must be very
much asleep if they allow themselves to be defrauded
regularly in this wholesale fashion.

It so happens however that we have an expert
opinion to show that evasion, though it undoubtedly
exists, is much less common than is generally believed.
Mr. Stoodley, the Secretary for Stamps and Taxes
in the Inland Revenue Department, gave evidence
(Cd. 2576, p. I) before the Departmental Committee
on Income Tax, in June 1904, to the effect that in
respect of the gross income, brought under review for
the year 190 1-2, there was little or no room for fraud
or evasion upon 649 millions, say 83 per cent., and
that only upon 150 millions, say 17 per cent., was
there any appreciable room for evasion. He added
his opinion that amongst the latter portion at least
half of the taxpayers, and probably more, made
tolerably correct returns.

A similar opinion was expressed in 1906 by Sir
('harles Dilke, the Chairman of the Select Committee
on Income Tax (Hlue Hook 365, p. xvi). He wrote
that '* about four-fifths of the income tax is either
assessed at the source or subjected to satisfactory
methods of verification," and tliat " collection at the
source is increasing by tlie conversion of private
businesses into public companies."

From tlie foregoing we may take it tliat only about
70 millions of the revenue is likely to be seriously

50 MIS-STATEMENTS OF INCOME

understated, and that if in respect of this amount the
non-disclosure be as high as 50 per cent., then the
concealed income amounts to 35 millions per annum.
This is the very figure employed by Mr. Bowley
(365, p. 221). It is but one-fiftieth part of the total
national income, and if apportioned among the Rich
and Middle classes, in Table C, it would make only
the most trifling difference to the conclusions to be
drawn from that Table.

CHAPTER XI

INACCURACY OF THE INCOME-TAX STATISTICS

Whatever this ev^asion may be, it is more than
counterbalanced by two important points which,
curiously enough, have attracted but little attention.
The first of these has been described by Sir Henry
Primrose (Cd. 2576, p. 11) in these words :—" It
is not possible to admit the proposition that, in
assessing the profits of a business to income tax,
we ought habitually to follow the same lines as those
on which the owner of the business estimates his
profits." He states the same fact, in different words,
when he agrees (365, Answer 114) that '• a very large
number of people pay now in excess of their true
incomes." This point is one with which commercial
men are only too well acquainted, since they con-
stantly have to pay income tax upon assessed
"profit" considerably in excess of the true profit
which the responsible auditor of a business would
certify as properly distributable. Tlie reason for
this overcharge is that the Inland Revenue authori-
ties are prohibited by law from allowing, when the
assessments are fixed, the deduction of various items
which mc?i of business always deduct in making uj)
their I*rofit and Loss accounts.

Many illustrations of this point can be given, For

52 INCOME-TAX STATISTICS

example, income tax must be paid upon all annual
interest received upon invested funds, no matter
wliether the business as a whole be proHt.able or not.
Thus a company employing only part of its capital,
wliich makes a trading loss of £1,200 by its opera-
tions for one year, and a profit of £1,000 as interest
for that year on its invested funds, would in fact have
made a net loss of £200, and its Profit and Loss
Account would duly report that fact to the share-
holders. Nevertheless income tax on £1,000 would
ha\'e to be paid, and the interest received by this
Company, which it has more than lost, would be
recorded amongst the Inland Revenue figures as
taxed profit. This system of taxing interest " at the
source," as the phrase runs, is severely enforced, and
is responsible for much official invention of profits
which do not exist.

Another example, and a constantly recurring one,
is to be found in property such as leaseholds, which
naturally depreciate as time goes on. In respect
of these, every commercial man charges against his
gross profits a deduction sufficient to meet each
year's depreciation of such property. If A, for
example, buys for £700 the last ten years of the lease
of a house let at £100 per annum, he puts by £70 each
year to replace his capital, and reckons his annual
profit at only £30. But the Inland Revenue authori-
ties allow of no such deduction for depreciation,
and for eacli of the ten years make him pay an income
tax based upon the full rent of £100 (Cd. 2576,
p. II). Tiius in the official figures his income
from this house appears at more than three times
the true income he obtains from it ! In view of the
fact that the houses, factories, etc., in the United
Kingdom, and tlieir lands, are estimated to be worth

INCOME-TAX STATISTICS 53

£2,860,000,000, and that the majority of them are
held on lease, it may well be believed that the true
income received from such property is much less,
in the aggi-egate. than the total appearing in the
official income-tax statistics.

Similarly with depreciation of plant and machinery
and ships, the authorities make some allowance for
this, but it is generally much less than what is
written off by the owners of such property. Further,
no general reserve may be made for doubtful debts,
a step invariably taken in proper commercial practice,
only such proportion of each one of them as is
estimated to be really bad being allowed, for income-
tax purposes, to be deducted from gross profits.
Such items as reduction of good-will, expiry of patent
rights, writing off' the expenses of forming a Company
or of issuing a loan, paying a premium on tlie
redemption of debentures, etc., are all treated com-
mercially as losses, but their deduction from gross
profits is not permitted by the Inland Revenue.

Income tax itself, of which £31,263,654 was col-
lected in 1904-5 from the Rich and Middle Classes,
(Cd. 2633, p. 192), is not allowed to be deducted.

The illustrations gixen in the last four paragraphs
show how exaggerated the official statistics are in
relation to the income of those who pay income tax,
but there is a second and most important point
whereon they are even more misleading, i.e. they
do not recogni/e any loss of capital which has been
suffered by the taxpayer. iKn important and univer-
sally occurring example of this is to be found in the
fact that no allowance is made for sums necessary to
replace capital lost by depreciation of buildings. Now
the houses, etc., in this country, apart from their lands,
are worth about 2,300 million pounds, and if they be

54 INCOME-TAX STATISTICS

supposed to last on an average for loo years, then
there is a loss of 23 million pounds of capital each
year, due simply to these buildings growing old,
wliich is entirely ignored by the income-tax
authorities.

Upon the same principle the losses from bad invest-
ments, or from unsuccessful trading, in so far as they
result in the exhaustion of capital, are also ignored.
Assume, for example, that 1 invest the sum of £1,000
equally in ten different Companies. In the first year
nine of these pay me dividends at the rate of 5 per
cent., while the tenth Company goes so hopelessly
wrong that my investment in it must be treated as
totally lost. Thus for the year I receive £45 in
dividends, and lose £100 of capital, the actual result
to me being a loss of £55. Nevertheless income tax
on £45 has to be paid, and in the official figures I
appear as having made in that year an income, i.e. a
pi'ofity of £45.

It is no exaggeration to say that the example just
given is representative of thousands of others occurr-
ing every year. All around us, in every trade,
capital is being destroyed in various unsuccessful
ventures, yet no notice whatever of such destruction
is taken by the Revenue authorities, and there is
absolutely no record of it kept by them. When
there is a profit, it is sought out, assessed and taxed ;
but when there is a loss of capital, the income-tax
officials pass it by as if it had never occurred. No
one would accept as reliable the statistics of a general
who published the achievements of those of his
soldiers who survived, but suppressed all mention
of those who were killed. Every one would agree
that such a record was misleading. For a precisely
similar reason the income-tax returns are misleading.

INCOME-TAX STATISTICS 55

for they include only the profit of successful ventures,
and suppress all mention of those which destroy
capital when they fail and die.

Obviously it is impossible to compute with any
accuracy what capital is destroyed each year, but
some idea as to its magnitude may be obtained from
the following figures {Stock Exchange Official In-
telUgence 1907, p. 1853): —

TTie number of Companies registered iu the United King-
dom, from 1 862 to 1906, was 101,019, with an aggregate
nominal capital of £6,779,998,495. Taking these to
be the same on an average as those now existing (see £

below), their /)«!>/-«;> capital has amounted to . . 4,936,697,511

The number of Companies existing in the United Kingdom
in 1906 was 40,995, with a paid-up capital averaging
£48,869 and aggregating 2,003,392,001

A deduction of the latter figures from the former shows that
in the 44 years between 1862 and 1906 no less than

60,024 Companies were liquidated or removed from the .

If one-third of the last-named amount be deducted
as representing vendors' shares issued as fully paid,
and if the capital returned to the shareholders be set
against the losses sustained by creditors, it follows
that since 1862 the loss sustained by British investors,
by the extinction of these 60,024 Companies, has
averaged over £44,000,000 per annum.

The capital owned privately is far greater than
that owned by Companies, but there are no statistics
to show how much of it is lost annually. Some
idea of this loss may however be obtained from the
fact that 7,599 people were registered as having failed
in 1907, thereby causing to their creditors a loss of
£8,380,000, and to them.selves probably several times
that amount. In addition to these recorded cases,
there must have been innumerable instances of capital

56 INCOME-TAX STATISTICS

lost, in the course of* ordinary business, by the un-
successful ventures of firms or persons otherwise
successful.

The total amount of capital destroyed, whereof no
record whatever appears in our income-tax statistics,
can hardly be less than loo millions annually. This
is certainly not an extravagant estimate, since — as
will be seen by reference to Table H — it is but 5 per
cent, of the "trade capital" in the United Kingdom.
As compared with the total private property in this
country, it is only 1 per cent. Probably the true
amount of capital annually lost is considerably more
than 100 millions.

From the foregoing it will be seen that there are
two entirely separate and distinct methods of comput-
ing profits. Commercial practice, supported by every
expert in accountancy, requires that certain deprecia-
tions be made, and that no profits be paid out of
capital. The other method, based upon the law
relating to income-tax assessments, forbids any
allowance being made for several of these deprecia-
tions, and refuses to permit diminishing or exhausted
capital to be taken into account in estimating profits.
It is thus a fact that while every business man is
required, under commercial law, to record only the
amount of his true and distributable profits, under
income-tax law he is compelled to pay the tax
upon a sum often considerably in excess of that
amount.

This statement is supported by a letter, received
by the writer from a leading London firm of Chartered
Accountants, as follows : —

" It is our common practice, in cases where we are
concerned with income-tax returns, to have to pre-
pare quite independent accounts in regard to Partners'

INCOME-TAX STATISTICS 57

Profit and Loss, and in regard to the so-called profits
which are assessable under income-tax rules. Only
to-day, we have under our notice a case in which we
have had to assent to, and agree, an assessment against
clients, for income-tax purposes, on so-called profitH
of between £16,000 and £17,000, where, in the accounts
which we rendered to them, they are chargeable with
a considerable loss on the actual working of their
business for the year which corresponds, for practical
purposes, to the tax year.

Cases of this nature are extremely common in our
experience in regard to income-tax assessments.

As illustrated by this example, we have no hesita-
tion in saying that, as a general rule, the profits
assessable under income-tax rules are considerably
in excess of the actual divisible profits shown in
properly drawn commercial accounts."

Confirmation of this, from a legal quarter, comes
in the following report of a lecture recently delivered
by Mr. T. Hallett Fry, barrister-at-law : —

" He commented upon the fact that, even to the
present date, no allowance was granted in respect of
the undoubted depreciation of all capital assets, with
the sole exception of " plant and machinery." Other
assets have certainly declined in capital value, e.g.
buildings, furniture, fittings, fixtures, etc., but no
allowance was made for this decline by the Commis-
sioners, It was time for a change, and for assessable
profit and actual profit to approximate. It was un-
satisfactory that a sum largely exceeding the amount
of the distributable profit should be annually taxed
for the purposes of income tax."

There can be no doubt therefore that the evasion
of income tax, whatever it be, is much more than
counterbalanced in the income-tax statistics (i) by
the over-estimation of distributable profit, and (2)

58 INCOME-TAX STATISTICS

by no allowance being made for loss of capital. This
being the case, it follows that the income of the Rich
and IMiddle Classes is overstated, and that the income
of the Masses is understated, in Tables A, B, C
and D.

The writer has gone into this subject rather fully,
in order to combat a prevalent misconception with
regard to it. Some writers on economics, evidently
with no practical knowledge of accoimtancy, have
assumed as a matter of course that the official
statistics form a true record, in no way exaggerated,
of the income actually received by payers of income
tax. This assumption has been shown to be
incorrect.

It will be understood, of course, that what is
here challenged is not the textual accuracy of these
statistics, but the popular use of them for a purpose
for which they w^ere never intended. They do not
agree, and were never meant to agree, with ordinary
accountancy results, and in certain respects it is quite
proper that they should not so agree. But in various
other respects the system of income-tax collection
ought to be altered by law, so as to bring it more
into line with commercial practice, and until this is
done its statistics must be accepted, for economic
purposes, with a considerable reserve for over-
statement.

CHAPTER XII

THE PEOPLE'S PROGRESS

It is constantly asserted by Socialists that the rich
are getting richer, and the poor poorer, that the
middle class are being crushed out, and that between
the Classes and the Masses there is, and always
must be. an impassable and ever-widening gulf.
This assertion is absolutely contrary to fact. The
true position is concisely stated in the following
extract from the Report of the Commission appointed
to inquire into the Depression of Trade (Cd. 4893,
p. 16) : —

" It would appear that the number of persons with
incomes of less than £2,000 a year has increased at a
more rapid rate than tlie population, while the number
of persons with incomes above £2,000 has increased
at a less rapid rate, and the number with incomes
above £5,000 has actually diminished : and further,
that the lower the income, the more rapid the rate
of increase. We think, therefore, there is distinct
evidence that profits are becoming more widely
distributed among the classes engaged in trade and
industry."

The correctness of this statement, as to the wider
distribution of profits, is entirely supported by the

6o THE PEOPLE'S PROGRESS

steady increase in the number of moderate incomes
during the last sixty or seventy years. So far from
being crushed out, the Middle Class has grown in
numbers, and is still growing, nmch faster than any
other class in the community. As Sir R. GiflFen
remarks : —

*' People having incomes below the income-tax
limit steadily pass into the class above. . . . The
number of assessments over £150 increased in England
between 1843 and 1880 from 107,000 to 320,000, or
about 200 per cent, in forty years, while the increase
in population has been less than 44 per cent." {The
Reign of Qiicen Victoria, pp. 26, 27).

jVlore recently the improvement has been still more
rapid, as shown by the following data {Essays on
Economic Questions, Goschen, p. 248) of the number
of Lower Middle Class incomes, in the years named : —

189s.

1903.

Increase.

Incomes of £'i6o to £400 .

436,325

575,474

32 per ceut

400 ,, 500 .

i3>oi5

49,680

282 „

500 ,, 700 .

15,050

38,119

153

464,390 663,273

This shows, in the short period of eight years, an
average increase of 43 per cent., as compared with
an increase of only 8 per cent. (Cd. 4413, p. 190)
in the population of the whole country during that
time.

Obviously, except in relation to growth of popula-
tion, it is from the Masses that the Classes must
be recruited, and the ftict that the so-called gulf
between them is anything but impassable is further
shown by the following figures.

THE PEOPLE'S PROGRESS 6i

In 1843 (Giffen, Essays in Finance, pp. 403-5) : —

The Classes, lA millions, earned £280,000,000 average £187 per head.
The Masses, 26 „ „ 235,000,000 „ 9 ,,

27i £515,000,000 „ £19 „

In 1905 (Table B) :—

Tlie Classes, 4 millions, earned £728,000,000 average £182 per head.
The Masses, 39 ,, „ 1,022,000,000 „ 26 „

43 £1,7 50,000,000 £40

Thus during these sixty years, after making allowance
for increase in population, it will be seen that fully
2,000,000 people from the Masses succeeded, by
industry and thrift, in working their way upwards
until they joined the ranks of those who pay income
tax. Indeed the number is greater than this if it
be correct, as stated by some statisticians (\ide
Riches and Poverty, p. 42), that the Classes now
comprise 5,000,000 people. In this case there must
have been 3,000,000 of the Masses Avho have crossed
the gulf which the Socialists assert to be impassable.
This accounts for the fact that most of the INIiddle
Class of to-day, and many of the Rich also, are the
sons or grandsons of men who began life in quite
humble circumstances. Some illustrations of this are
given in the following press-cutting : —

"The late Mr. (^eorge Singer, starting as a
mechanic, amassed one of the greatest fortunes
ever made in the cycle industry. Sir \\'illiam Arrol.
whose career has been si ill more romantic, began his
working life, as a child of nine, in a cotton mill. Sir
Christopher l^urncss's fortune was cradled behind a
grocer's counter. Sir iXlfrcd .Foiies's on a stool in a
shipping oflicc, and Mr. W'hiteley's in a U'aketield

62 THE PEOPLE'S PROGRESS

draper's shop. Sir Donald Currie, at fourteen, was
learning clerk's work at Greenock. At the same age
Sir Richard Tangye was a pupil teacher on £i a year,
plus board, lodging, and clothes. Sir John Leng's
start was as an ill-paid reporter : and at nine years of
age Sir Thomas Lipton is proud to recall that he was
able to add a weekly half-crown to the poor family
purse by errand-boy's work in Glasgow" {West-
minster G(i::ctte, January 7, 1909).

The foregoing figures also show what an immense
advance there has been in the income of those who
have not " crossed the gulf." In 1843 they earned
all round only £9 per head, or say £40 per family, the
same as our Unskilled worker of to-day receives. In
the course of the next sixty years 2,000,000 to
3,000,000 of them rose up and passed entirely out
of their ranks, while the others remaining in those
ranks so improved their position that by 1905 they
were earning £26 per head, or say £111 per family,
being an increase of nearly 200 per cent. Instead of
getting poorer, the Masses have augmented their
income per head far faster than any other class in
the community.

The extent of this augmentation can be well
realized by an inspection of Diagram Number Three.
It is constructed upon the figures just quoted, the
Artisan Class of 1843 being assumed to have con-
stituted the same proportion {i.e. as 13 to 5) among
the then Masses, in nmiiber and relative income, as
they do among the Masses of to-day. A comparison
of the black portion marked A in this diagram, with
the black portion marked AA, will show how
enormously the artisan income has increased, both
in total and per head, during the last sixty years.
It also shows how the Unskilled now receive more

THE PEOPLE'S PROGRESS 63

per head than they used to do, while the Classes noM^
receive a trifle less per head than they did in 1843.

In view of the undoubted improvement in the
general condition of the Masses of this country,
during the last sixty years, one cannot but read
with astonishment part of a speech recently made
by a certain Member of Parliament. On May 5,
1909, he is reported to have said : —

" My object, as an advanced Socialist, is to make
the rich poorer and the poor richer. 1'here is no
other way under heaven by which the poor can be
made better off than by making the rich poorer."

He might just as well have said that he knew of
no way under heaven by which the poor batsmen
in a cricket team could score more runs than by
their appropriating some of the runs actually made
by the good batsmen. Or, to vary the metaphor,
he might just as well have said that the only way
to make sick men well was to make healthy men
sick. Most Socialists make this blunder of assuming
that the national income is a fixed quantity, and that
the only expedient for increasing Paul's share of it
is to reduce that of Peter. They do not seem to
realize that the shares of both can be made larger
by Paul's making good use of the material and
guidance provided by Peter. How this has actually
happened has been well described by Mr. Mallock.
writing as follows in 1896 : —

" The working classes in i860 were in precisely the
same pecuniary position as the working classes in
1800 would have been had the entire wealth of the
kingdom been in their liands. 'J'he working classes
of to-day arc in a better pecuniary position than their
fathers would have been could they have phindcred
and di\ ided between them the wealth of every rich

64 THE PEOPLE'S PROGRESS

and middle-class man at the time of the building of
the first great Exhibition " ( Classes and Classes,
p. 28).

Thus history shows that there is a way " under
heaven " by which the poor can be made better
off' without making the rich poorer. Further, this
same way, as already pointed out, has enabled
millions of poor people to rise up and leave poverty
far below them.

What the Socialists want to do is to block this
way, which has led to such good results. To use
our former simile, they want to take runs from,
and so to discourage, the best batsmen of our cricket
team, merely to give an artificial and temporary
advantage to the poorer players. They do not realize,
apparently, the injury they are in this manner inflict-
ing on the whole team. The correct policy is to
encourage our superior players to make as many
runs as possible, and so to wear out the bowling
attack, thus making it easier for our poorer players —
the Unskilled in Table B — to make runs in their
turn. Nature is our opponent, and the way to beat
Nature is to let the strongest players — those with
inherited health and skill — bear the brunt of the
attack. The better they play, and the more runs
they get, the more do they make the task easy for
the weaker players who follow them.

The best proof, that this lightening of the burden
is actually taking place, is to be found in the fact
that it is not merely in respect of income that the
Masses have so steadily advanced towards the Middle-
class level. The skill of scientists and inventors,
supported by keen business management and backed
by a liberal supply of capital, has enormously lessened
the physical exertion of the handworkers. The man

THE PEOPLE'S PROGRESS 65

who formerly helped to dig a canal, by dint of per-
spiring and back-breaking work with pick and shovel,
now sits upright and comfortable on a steam ex-
cavator. Formerly his exertion was entirely muscu-
lar, while now it is his judgment he is paid to use in
controlling the powerful machine he guides, his only
manual work being the occasional manipulation of a
few sm.oothly-moving handles. The man formerly
shovelling coal, in a vile atmosphere on an Under-
ground Railway engine, and stopping his train at each
station by violent muscular work at his hand-brake,
is now succeeded, in a far improved atmosphere, by
the driver of an electric train, whose driving and
brake handles need as little physical effort as a lady's
hair-brush. These instances could be multiplied
almost indefinitely, for in nearly all trades there is to
be found a considerable amelioration in the conditions
of labour.

It is true that the workman still lives by the use of
his hands, his muscular effort in some cases being as
severe as ever, but the never-ceasing development of
industrial appliances now makes his welfare as a rule
to depend less upon his strength, and more upon his
intelligence. It is very noticeable how he has pros-
pered most in those trades where he has freely adapted
himself to the labour-saving facilities of modern
enterprise. Mr. Sidney Webb gives an excellent
illustration of this : —

" Costly hand-made lace is usually the outcome of
cruelly long hours ol" hil)our, starvation wages, and
incredibly had sanitary conditions: whilst the cheap
(machine-made) article, which Nottingham turns out
by the ton, is the output of a closely combined trade,
enjoying exceptionally high wages, short hours and
comfortable homes."

66 THE PEOPLE'S PROGRESS

Year by year the improvement in machinery eases
the toil of workmen, but at the same time throws
upon them more mental responsibihty. Indeed, a
great deal of what is still termed I^abour is now more
in the nature of headwork than of handwork, and is
paid accordingly. Already, as shown in Diagram
Number One, nearly one-fourth of the Masses earn
their living otherwise than by muscular effort, and the
proportion of this non-manual work is undoubtedly
on the increase.

Yet another factor, in relation to providing means
of existence for our increasing population, is men-
tioned by the Poor Law Commission in these terms
(Cd. 4499, p. 344) :—

'* Independently of the fact that much machinery
— perhaps the bulk of it — is doing what man never
did and never could do, and that in many directions,
such as puddling, recent inventions have dispensed
with severe manual toil and also with the physical
strain which attended many processes, it may be
pointed out that if it had not been for the machinery,
and the possibilities of existence it brought, there
would not have been anything like the present popu-
lation to employ."

There can be no doubt that Capitalism and Invention
have produced, and are continuing to produce, three
important advantages to the Masses of those countries
which are subject to modern industrial conditions.
Firstly, the wages of the workers are raised ; secondly,
the conditions of their work become less arduous :
and thirdly, new avenues of employment are brought
into existence.

CHAPTER XIII

INTERNATIONAL SOCIALISM

Socialist writers and speakers constantly prate of
the Brotherhood of Man, the Soh'darity of Labour,
and so on. If they are in earnest about this it ought
to come to pass, when the whole world turns Socialist,
that all men should share the world's income in-
dependently of the race to which they belong, i.e.
that Chinese, Brazilians, Hindoos, Zulus, Esquimaux,
and others, together with all the savages and canni-
bals, should rank economically on level terms with
Europeans. This would mean that the bulk of
European income would have to be presented gratis
every year to the inhabitants of other continents.

Dismissing tliis as impracticable, let us reduce the
area of Socialist brotherly love to Europe. Still
the same difficulty remains, inasmuch as the income
per liead varies greatly in different countries. An
estimate of these incomes {Industries a ml Wad tit of
Nations^ Mulhall, p. 391) appears in Table G. It
was drawn up as long ago as 1896, but probably still
represents more or less correctly the relative positions
of the several countries. Germany stands sixth on
this list of comparative prosperity, while poor Russia,
with lier huge population, comes at the very end.

If Europe became one large Sociahst State, the

68 INTERNATIONAL SOCIALISM

presumption is that one man, because he was a man
and not because of his vakie to the community, would
have to be considered as good as another. This
would be carried into effect by the State officials,
with the result that English workmen would receive
less than the true value of their services, while other
European workmen would receive more than they
were really worth. That this result would be in-
evitable may be seen from the following data (Cd.
1761, p. 289), in which are compared the average
family incomes of workmen in the three countries
named, the artisan level of £142 in our own country
(Table B) being taken as the basis for comparison : —

United Kingdom. France. Germany.

£142 £118 £98

These figures, it will be noticed, follow fairly closely
the " average per inhabitant " set out in Table H,
and upon this basis the general European family
wage may be presumed to be about £77 per annum.
Thus a Socialistic redistribution of European income,
with all the nations treated alike, would cause the
average family income of the British artisan to fall
from £142 to £77 per annum, i.e. by nearly one
half !

It may, however, be asserted that Socialism does
intend to recognize, by varying rates of pay, the
varying usefulness of different workmen. If so,
the answer is that the look-out is still a poor one
for Englishmen, in view of the fact that they
would be hopelessly outnumbered in the election
of the European State officials by whom all the
European wages would be fixed. The preponder-
ating majority of Russian, German, Austrian, and
Italian delegates, in the European State Parliament,

INTERNATIONAL SOCIALISM 69

would assuredly claim that the best of their re-
spective fellow-countrymen were as useful as the
best of the Englishmen, and therefore entitled to
equally good wages.

This being the case, it is safe to say that England
will never be converted to Socialism unless on the
understanding that she is not to throw in her
economic lot with other nations. But then we
run up against another difficulty. In Socialist
England there are to be no poor, or at any rate
no very poor, people. Reduced to figures, this
means that the minimum income of a family is to
be about £2 per week, quite irrespective of whether
its services, as measured by the law of supply and
demand, are or are not worth so much. The
members of such a family are to be so paid by
the State merely as human beings, entitled to
receive that amount except in case of excessive
laziness, incompetence being no disqualification.

Now it is a fact that whereas demand creates
supply, so supply may create demand. Given the
supply of £2 per week as minimum wages to every
family in Socialist England, it is absolutely certain
that such an Eldorado would be an irresistible
attraction to large numbers of people in other
countries to whom such an income is now utterly
beyond their wildest hopes of ever attaining. Millions
of poverty-stricken foreigners would scrape and
starve themselves to collect money enough to bring
them to this country, in order to become naturalized
Englishmen and claim their £2 per week.

The problem of Socialist England would then
be to decide as to how this horde of undesirable
aliens should be treated. If they were admitted
they would, not iiaviiig any capital, merely join

70 INTERNATIONAL SOCIALISM

the ranks of native English labour, and would very
soon absorb so much of our national income as to
reduce us all to absolute poverty. Not even " the
control of capital by the people for the people "
could withstand such an onslaught.

The other alternative of Socialist England would
be to attempt to keep all these foreigners out, a
course of action likely to be attended with serious
difficulty. They would already have witnessed
from their respective countries the spectacle of
£11,000,000,000 worth of English capital being
taken by force from the Englishmen who formerly
owned it — for it is certain that nothing short of
violence can ever procure the " nationahzation " of
all our private property. It would be a strange
thing if these foreigners should fail to profit by the
lesson that ours was a land where force reigned
supreme, and it is not difficult to believe that they,
in their turn, would use force to procure their
admission to a country where a share of the plunder
was to be obtained merely in exchange for a vote
in favour of Socialist government.

PART II

THE REWARDS OF CAPITAL

PART 11

THE REWARDS OF CAPITAL

CHAPTER XIV

THE NATURE OF CAPITAL

Owing possibly to the " dismal science " of Political
Economy having been " banished to Saturn " by
politicians, and to the neglect of its study in general,
there is a good deal of misapprehension as to the
part played by capital in the economic development
of a country. It used to be the fashion amongst
certain Socialists to condemn capital as the source
of all social evil, and to advocate its destruction in
order to create fresh work for labour, much in the
same way as a disastrous fire is by ignorant people
considered to be "good for trade." In course of
time this foolish view has fallen into disrepute, and
the tendency now is rather towards the other extreme
of o\er-estimatiiig the power and the rewards of
capital. In order to deal with this question we have
to consider (i) what capital is, (2) how it is operated,
(3) how it is owned, and (4) the advantages gained
by the persons who own it.

One caution should first be observed. The word
Wealth may be concisely defined as indicating
" pro})erty," and is, therefore, tlie same in meaning

74 THE NATURE OF CAPITAL

as Capital. But it is often colloquially used to
indicate Income, as for instance we might say that
a barrister earning £10,000 a year is a wealthy man,
though for aught we know he may spend his income
as fast as he earns it, and so have practically no
capital whatever. To prevent any confusion on this
point, it will be well to avoid altogether the use
of the word Wealth, unless qualified as Accumulated
Wealth, and to employ instead the word Capital to
denote "property devoted to reproductive employ-
ment."

The word Income has, of course, an utterly
different meaning. In economics it is usually
reckoned as so much per annum, and denotes the
amount of money, or its purchasing equivalent,
received by a person, to spend or save as he chooses,
in return for his personal exertions or for the use
of his capital.

The comparison is constantly made by Socialists
between the small number of persons who die worth
much "wealth," and the large number who die
having very little " wealth." This is very apt to
give a wrong impression, since the important point
is not so much the amount of capital a man leaves
at his death, but rather the amount of income he
receives during his life. It is not generally known,
for example, that the Masses of this country receive,
in the course of eleven years, an amount of money
wages equal to the value of the entire national
capital.

Various estimates have been made of the value
of the accumulated property belonging to the
Imperial Government, to various local authorities,
and to private persons, of the United Kingdom.
The one here selected has been taken from a Sociahst

THE NATURE OP CAPITAL 75

source {Riches and Poverty, p. 59), its figures having
been slightly altered to bring them to round totals,
as shown in Table H. The aggregate amount of
capital it records is £11,450,000,000, which works
out at an average of £260 per head of our popula-
tion. Of this amount a little more than one per
cent, is coin, the total of which, in use in the United
Kingdom, was stated, on February 23rd, 1909, by
the Chancellor of the Exchequer to the House of
Commons as follows : — gold, £100,000,000 ; silver,
£24,500,000 ; copper, £3,000,000 : total, £127,500,000.

A curious misunderstanding exists in the minds
of some people as to the true nature of capital.
Knowing that coined money is capital, and that
capital is calculated by its value in money, they
do not appreciate what a small part is played by
actual coin in the commerce of the country. It
has been computed that all our wholesale business
transactions, except about half per cent, of them,
are effected by cheques, bills, etc. In ordinary
cases coin is used only for payment of wages, and
for some (not all) of the retail purchases.

This important point can, perhaps, best be realized
by the illustration of a party of persons who spend
an evening in playing various games for money.
To avoid the inconvenience of repeatedly settling
up in cash while the sport is in progress, the losers
hand to the winners, at the end of each game, a
piece of paper representing the amounts to be re-
ceived by those winners. At the end of the evening
the various papers are compared, and each player
receives or pays in cash the net amount due to
or by him. In this way, supposing the points to
be penny ones, the actual exchange of a few pence
might represent the final result of many pounds'

76 THE NATURE OF CAPITAL

worth of money lost or won. In other words,
credit has been the means, until the time for settling
up came, by which the financial transactions of the
evening have been carried on.

The part played in these games by the aforesaid
pieces of paper corresponds exactly with the part
played by cheques, and bills of exchange, in the
transactions of actual commerce. While the gold
coin in the country is only lOO millions, the cheques
cleared, in the London Clearing House alone,
amounted in 1905 to 12,287 millions. That is to
say, credit is the means, except when an occasional
settling up is made in cash, by which the financial
transactions of the country are in the main carried on.

Our capital then, except as to one-hundredth part
of it, consists of things which are not money. To
have capital consists in being the owner, or having
the means to become the owner, of one or more of
the kinds of property specified in Table H, or to
buy the services of other people, at some market
price expressed in terms of money. It is this
power to select at will the kind and the amount
of property to be acquired, together with the power
to apply some of their money to the payment of
salaries and wages, which gives the capitalists the
control of industry.

It may also be pointed out that the ability to
work is not capital, although often so claimed
to be. The strength of a labourer, the skill of
a craftsman, or the knowledge of a physician, are
in their different ways invaluable, but they do not
constitute possessions which can be passed from one
owner to another. Only property can be capital,
and — except where slavery prevails — the mere capacity
to render service is not property.

THE NATURE OF CAPITAL 77

There are some interesting points to be noticed
in relation to British capital. The first is its extra-
ordinarily rapid gi'owth during the last seventy or
eighty years, owing to the removal of restrictions
upon industry, the development of new forms of
power, and the invention of new processes and
machines. Its value in 1812 has been estimated
at 2,000 millions, while now it is over 11,000 millions,
so that more than four-fifths of our present capital
has been newly created since the time of our great-
grandfathers. Its average rate of increase has been
at the rate of about 2 per cent, each year.

Another point is the steady decrease in the pro-
portion of that part of our income which is derived
from agricultural land. This is shown clearly in
the following: —

^ .4 /^, ., , » • ij. 1 Percentage of

_ Gro88 " Class Incom* Agricultural Rent to

Reviewed. Rental.

£ £

Gross Income.

1 8 14 . . . 127,000,000 40,000,000 34

1 85 1 . . . 257,000,000 47,000,000 i8|-

1880 . . . 577,000,000 69,000,000 12

1906 . . . 925,000,000 52,000,000 5i

In publishing these figures {Daily Telegraph, April 6,
1909), Mr. Mallock draws special attention to the
fact that agricultural rent is our one form of income
which, alone of all forms, is relatively growing less
and less. It is in manufactures and commerce, not
agriculture, that the phenomenal progress of the last
century has taken place.

Tiie .small amount of debt-free capital owned by
" the State " is very noticeable in Table H. A
large part of it, comprising warsliips, naval works,
army material and works, conunon lands, roads,
bridges, sewers, workhouses, and so on, has always

78 THE NATURE OF CAPITAL

been collectively owned, and is likely to be. The
remainder, comprising some schools, some lighting
systems, some electric light and power undertakings,
some tramways, some waterworks, etc., capable of
private control, but actually controlled by our
various local authorities, has been valued {Riches
and Poverty^ p. 6i) at something less than
£500,000,000, subject to an outstanding debt of
£425,000,000. Even if this debt were paid off out
of taxation, the whole of this publicly-owned
property, applied to income-earnmg purposes, would
represent only about one twenty-fifth part of the
total capital of the country. As it is, the net value
of this property is less than a two-hundredth part
of that total. Clearly we are as yet a long way
from the Socialistic goal of complete collective
ownership, and now that municipalities cannot
borrow money as they used to do, this goal seems
further off than ever.

But — the reply of the Socialist will be — there is
the Imperial Government to be reckoned with. If
a majority of the electors decide that all property
shall be owned by the State, the thing is as good
as done, and the rest is a mere matter of detail.
Parliament can do anything it likes, and those who
refuse to comply with its laws must be made to
do so.

As a matter of fact, there are only two methods
by which the property of the country could ever
belong solely to the State. One is by voluntary
surrender on the part of all its present owners, and
the other by enforced surrender. An intermediate
course is sometimes propounded, as, for instance,
when we are told {Real Socialism, by Blatchford,
p. 15) that "some Socialists are in favour of buying

THE NATURE OF CAPITAL 79

the land, the railways, the machinery, and other
things." Now the most casual inspection of Table H
will show that a State purchase of all private
property is impossible. A thing is bought when it
is paid for in money, and as the State can raise
money only by taxation, it is clear that the necessary
£11,000,000,000 in cash could not be obtained. Any
attempt to extort even a small fraction of that sum,
in addition to our present £160,000,000 of annual
Imperial taxation, would utterly upset the whole
commerce of the country.

Even if all the private property could be in some
way bought without tlie use of money, the principle
of " value for value " would still hold good, and
the people who sold it to the State would have to
receive in exchange for it 11,000 milhons' worth of
something else. That " something else " does not
exist.

Precisely the same difficulty would occur if the
State attempted to borrow, as municipalities have
done hitherto, in order to buy up all the privately
owned capital, since there is nothing in existence
which a Socialist Government could borrow to use
as purchase price for this property. It is conceivable,
of course, that irredeemable Government bonds, of
the face value of £11,000,000,000, might be issued
in exchange for the permanent loan of all this
capital to the State, bearing sufficient interest to
tempt existing propcrty-lioldcrs to make such a
loan. But clearly a \nmd issue of this kind is out
of the question, since the annual payment of interest
upon it would be a State recognition of private
ownership — the very thing whi(.'h Socialism denies.

The alternatives of Collectivism then are voluntary
surrender or enforced surrender. The former is

8o THE NATURE OF CAPITAL

nnlikel5% to say the least, if for no other reason
than that private owners of capital are perfectly
aware that they can administer it with better
advantage, to the community and to themselves,
than any State officials could possibly do. Besides,
the voluntary surrender would have to be universal,
otherwise there could never be that complete State
monopoly which is the essence of Collectivism.
This is the more improbable, since so long as
parental affection exists it is certain that most men
will prefer not to hand over their property to the
State, but to leave it to their own children. As
has been truly remarked, the instinct of Bequest
is as strong as the instinct of Maternity.

The only practical method of establishing com-
plete collective ownership, then, is by force. The
disastrous effect of such a revolutionary action need
not here be discussed. It is sufficient to remark
that the defence of their property by its present
private owners, amongst whom are many of the
ablest men in the country, would certainly be a
fierce and lengthy one, and that so long as the
conflict lasted the suffering would be wide-spread.
As the income resulting from the concerted con-
tributions of Capital and Headwork and Labour
depends for its very existence upon their all peace-
fully combining to produce it, it is certain that
much of it would cease entirely — as it now does
in the case of a strike — if this peace were to be
replaced by active war. The Masses therefore, in
so far as they support the establishment of Socialism,
must be prepared for many years of living upon a
lower income than they get at present.

It will be of interest, in relation to the above-
quoted estimate of £11,450,000,000 as the value of

THE NATURE OF CAPITAL 8i

British capital, to compare it with the corresponding
amount in France. In 1908 the accumulated wealth
of the latter country was estimated by M. Leroy-
Beaulieu as £9,030,000,000, while .in the following
year the Vicomte d'Avenel computed it at
£9,200,000,000. This works out at £230 per head
of population, as against £260 per head in the United
Kingdom.

CHAPTER XV

THE OPERATION OF CAPITAL

In a primitive state of society, where each man
cultivates his own patch of ground, and hves on its
products, it is possible for him to maintain himself
as an isolated unit, and to dispense with any but the
most elementary kinds of capital. But as civilization
progresses, and industry becomes increasingly or-
ganized and compHcated, it is less and less feasible
for him to depend entirely upon himself. As the
Poor Law Commissioners have truly remarked, " The
essential features of the present-day system are that
almost no one makes goods or renders services for
his own consumption or support, but risks his fortune
or his livelihood on catering for the wants of others "
(Cd. 4499, p. 329). Under modern conditions, in
fact, the efforts of each citizen are almost entirely
devoted to supplying the needs of his fellow citizens,
and at the same time he becomes more and more
dependent upon capital. Railways, for instance, and
steamers and factories, and all our other extensive
appliances for producing and increasing wealth, could
not exist without much capital, together with care-
fully planned co-operation between the different con-
tributors to the common welfare.

In course of time this co-operation has developed

THE OPERATION OF CAPITAL 83

into three distinct but closely related sections, and
every man, in order to obtain an income, must make
his contribution in one or more of these sections.
He must oflPer to his fellow-men, and induce them
to accept upon mutually agreed terms, either the
use of his capital, or the work of his head, or the
work of his hands. Thus he can be : —

1. An Investor, one who trades with his own
capital, or becomes a partner with others in some
firm or Company, or lends his capital to some person,
firm. Company or Government. He takes the
chance of profit, and runs the risk of loss.

2. A Headworker, one who occupies himself in
controlling and managing capital or labour, or in
performing work wherein his hands take a subor-
dinate part. He is paid by the capitalist for his
services, and (unless he is also an investor) he runs
no risk of financial loss during his term of service.

3. A Handworker, one who apphes his physical
skill, strength, and intelligence, to work done with
his hands. He also is paid for his services, and runs
no risk of financial loss during his term of service.

There is no hard-and-fast line between these
groups, and it constantly happens that a person
passes from one to another, or occupies two of them
at the same time. Thus a craftsman, whose work
is essentially with his hands, may prove so valuable
and reliable that he is promoted to the position of
foreman, whereby he passes into the group of those
who use their brains in directing the labour of others.
The occupation of two groups at the same time is
illustrated by every working member of a trades
union or benefit society. He is both a Handworker
and an Investor.

Similarly a clerk, whose routine work in typing

84 THE OPERATION OF CAPITAL

letters, posting ledgers, etc., was done essentially
with his hands, may rise to be manager, in which
position he becomes a controller not only of his
employer's capital, but also ol' the labour of his
juniors in the office. Further, from the moment
he begins to put money in the savings bank or into
the shares of some Company, or buys his house
through a building society, he becomes an Investor
as well as a Headworker.

A man who starts life with capital may occupy
one or more of these positions according to circum-
stances. If he be rich, he may elect to remain
merely an Investor, and to live upon the return from
his capital. Or he may control it himself, or help
to do so, and so become both Investor and Head-
worker in relation to his own property. Or, if his
capital be small, he may relinquish its administration
to others by investing it in one or more securities
or Companies, and earn the chief part of his income
as the paid servant of some employer.

Except as the result of certain Government
measures, or of artificial monopolies (such as trusts,
rings, trade unions, etc.), the rewards of Headwork
and Handwork are determined solely by the law of
supply and demand. Thus it is that a good cook is
often paid more than a governess, a poorly-educated
craftsman more than a University-trained school-
master, and so on. As a rule, however, since the
capacity to administer capital, and to direct the work
of others, is far more rare than the capacity to work
with the hands, it generally happens that Headwork
is better paid than Labour.

The capitalist, whether he controls his property
himself or employs the headwork of others to do it
for him, is in a special and peculiar position. His

THE OPERATION OF CAPITAL 85

mission is to serve his fellow-men by judging how
their varying wants can best be supplied, and to back
his judgment by employing his capital accordingly.
His reward depends mainly upon two things: (i)
selection of a suitable industry wherein to make his
investment, and (2) control of the capital and of the
men he has caused to embark in that industry.
When he has done well in both these respects, his
capital increases, and the amount of that increase —
after providing for depreciation and debts, and paying
all salaries and wages — is called profit. Should he
do less well, and have no profit, he will have paid
the agreed reward to the men who worked under
him, but will himself have received no reward for
the use of his capital or for his own work in con-
nection with it. In the event of the business
showing a loss, the men employed will have been
paid full salaries and wages, just in the same way
as if the business had been a brilliant success, but
the capitalist is the poorer by the extent of that loss.
All that he gets for his investment, his personal work
and his anxieties, is to find himself worse off than
when he started, with his time wasted and part or
all of his capital destroyed.

It is this risk of loss which determines the reward
of the investor. When he wishes to be quite free
from this risk, he has to be content (in this country)
with about 2^- per cent, per annum. Should he seek
a better return he can get it, but then the element
of risk begins, and the more actively he pursues tlie
former the more will he be liable to disaster from
tlie latter. Taking the country as a whole, the
percentage of reward to capital is slowly decreasing,
because capital itself is increasing so fast. But for
the same reason the total amount of the reward to

86 THE OPERATION OE CAPITAL

capital is increasing, the most satisfactory feature
being the rapidly growing number of individual
capitalists.

Thus the essential difference between the investor
and the worker is that the former incurs risk and the
latter does not. We hear it said that " wage-earning
must go," and that in future the employer and
employed must be in full partnership. But the
people who so glibly talk in this way forget, or do
not know, that a partner is one who shares losses
as well as profits. Let them ask any compositor,
for instance, whether he is prepared to set up the
type for a book on the understanding (i) that he
shall receive no wages, (2) that should the sale of the
book show no profit, he shall receive no payment
whatever for his work, and (3) that if the sale be
successful, he shall not receive his portion of the
profit until such time, perhaps months afterwards,
as that profit is collected in cash. There can be no
doubt as to what his answer would be. All the
world over, employees prefer to take the certainty
of an immediate and definite wage, leaving to the
capitalist the uncertainty of a future and indefinite
result. Profit is mainly compensation for risk of
loss, and partnership, in the true sense of the term,
can exist only between those who share that risk.

There is, of course, another and more limited form
of profit-sharing, where the workmen are paid wages,
and receive in addition a bonus out of the profits
when there are any. This, however, is not a partner-
ship between employer and employed, since in this
case the workmen cannot be called upon to aid in
making good any loss which may occur.

It is important to remember that all contributors
to the national economic welfare, whether they be

THE OPERATION OF CAPITAL 87

Capitalists, or Headworkers, or Handworkers, are in
the same boat as regards unemployment. When the
community does not want, on remunerative terms,
what they have to offer, they are unemployed, and
there can be no question that the first two of these
groups are " out of work " quite as often as the
third.

But they are not all in the same boat when they
do find occupation. So long as the business lasts.
Handwork and Headwork are then in a position of
certainty, for their claim to wages and salaries takes
precedence of all other claims. The Capitalist, on the
other hand, has no certainty at all, since his is the
last claim on the profits of his own business. It
is precisely because his interests remain in the back-
ground until all other people have been paid what he
has agreed to pay them, tliat he takes the profit left
at the end — if there be any.

CHAPTER XVI

THE THREE FACTORS OF WEALTH-PRODUCTION

It is the custom of the Socialist to start by assert-
ing that "labour" is the source of wealth, meaning
by this term the work of men who labour with their
hands. This idea he no doubt obtains from the
earlier political economists, who used the term
Labour in a general way, without any idea that in
our time its meaning would be narrowed down to
one particular kind of work, namely. Handwork.

As a matter of fact, the old economists were per-
fectly right, and they are right still, provided that we
restore their meaning to the broad scale on which
they meant it. In modern language we can state
that Human Effort is the source of all wealth. We
can go further, and classify that effort into physical,
mental, and moral. The first of these is what is now
called Labour, consisting essentially of handwork, of
which to a greatly varying extent all able-bodied men
are capable. The second, mental effort, we can more
briefly describe as Headwork : it comprises the two
faculties of management and invention, and is pos-
sessed to an effective degree by comparatively few
people. The third is the moral faculty which under-
lies everything relating to the intercourse of human

beings. In relation to economics it is the motive

THE THREE ECONOMIC FACTORS 89

power which make men work industriously with hand
and head, and prompts them to save part of their
income to provide for their old age, or for the future
of their children. It is this faculty also which induces
those who have saved wealth, or inherited it, to deny
themselves the temptation to squander it, and instead
to keep it in order that it may be of use later on.
Moral effort, then, involves Thrift, and its result is
that accumulation of property which we call Capital.
The special importance of the second of these two
factors, Headwork, was first strongly urged by
Mr. INlallock, in his Labour and Popular Welfare,
published in 1896. On p. 145 of this book he applied
to this factor the term " Ability," and his example
has been followed by other w^riters. This word,
however, has the disadvantage of referring to hand-
work as much as to headwork, its meaning being
simply Skill or Fitness, e.g. as when we speak of an
able-bodied seaman, or of a cook being able to pre-
pare a six-course dinner. Sir Christopher Furness,
in a conference with his employees on October 8,
1908, used another term. He said : —

" The active forces of the industrial world are
usually represented as twins, Capital and I^abour.
l^ut, for my part, they always resolve themselves
into a trinity — Enterprise, Capital, and Labour— no
one of wliich can well do without the other."

The word " enterprise " seems hardly suitable in this
connection. It denotes merely " readiness to engage
in undertakings of difficulty, risk, or danger," and
d(jcs not specifically include the mental effort so
characteristic of modern industry. Mr. Sidney
Webb was nearer the mark when he very happily
yvrote : —

90 THE THREE ECONOMIC FACTORS

" To the wage-earners, as a class, it is of the
utmost importance that the other factors in produc-
tion— capital and brain-power — should always be at
their highest possible efficiency, in order that the
common product, on which wages no less than profits
depend, may be as large as possible."

The term " brain-power," however, is hardly strong
enough, since people may have brains and not use
them. On the whole, the writer considers that the
term " Head work " is the best to employ, and he
subdivides as follows, in respect of the human effort
exerted, the three factors of wealth-production : —

HANDWORK Manual taskwork I

i Non-manual taskwork .... 2

Management 3

Invention ...... 4

CAPITAL {^i*^ ::;:::: ^

Economic prosperity depends upon the efficiency of
all of these, and one of the tasks of good government
is to ensure to them the utmost freedom in action, so
that they may supply to the best advantage *' what
the public wants."

It is to the two subdivisions numbered 4 and 6,
Invention and Thrift, that the immense progress of
the last sixty years has mainly been due. The vital
distinction, between them and the others, is that
Taskwork, Management and Risk are effi^rts which
begin and end with each present work they are
engaged upon, whilst Invention and Thrift are effiarts
which affisct the future work of many individuals,
thus hastening or perfecting the accomplishment of
an indefinite number of tasks. The act of a surgeon,
for instance, in performing the most difficult opera-
tion, begins and ends with one particular patient,

THE THREE ECONOMIC FACTORS 91

while the discovery of an improved anaesthetic is an
act which perfects the accompHshment of all future
surgical operations. The spending of money on
wages ajfifords an immediate benefit, but only one,
while the saving of money, and its investment in a
successful enterprise employing effort of any kind,
affords year after year a continued benefit to all
concerned in such enterprise.

The difference between the aforesaid kinds of
human effort is curiously like the difference between
revenue and capital expenditure, as described on
p. 22. All these efforts, when properly made, are
of value to the community. But it is Invention and
Thrift which chiefly cause economic progress, since
with their aid new capital is created which, but for
them, would not have come into existence at all.

The imperative necessity for all these three factors.
Capital and Headwork as well as Handwork, can be
well illustrated by the building of a Mauretania.
Assemble a thousand shipwrights, engineers, car-
penters, etc., at a suitable waterside place, and tell
them to construct the steamer. They are helpless,
for they have nothing to which to apply their hands,
and must perforce remain unemployed. Then intro-
duce Capital, in the form of a slip, machinery, engine-
power, plates, beams, wood, and so on. Hand it
all over to them, and bid them proceed. They still
remain helpless, since they do not know how to
shape the materials to produce that delicately adjusted
construction wliich a modern liner is. Finally add
the third person of the trinity, Headwork, to guide
the men down to the smallest details in forming and
fitting every piece of the material. Then, and then
alone, can the steamer be constructed.

Except in a very primitive state of society, all

92 THE THREE ECONOMIC FACTORS

these three factors are needed in every industrial
operation. They would be just as necessary under
Socialism, but the difference would then be that Risk
and Thrift would be undertaken entirely by the State,
and JNIanagement by State officials. Another and
very important difference would be that the inferior
grades of Handwork and Headwork, instead of being
recompensed (as they now are) according to worth as
determined by demand, would be paid wages con-
siderably higher than the economic value of their
work.

It should be noted too that not only would these
three factors be needed under Socialism, but they
would be needed in much the same proportions as
at present. Its advent could not in any way reduce
the amount of toil now found necessary. No doubt
some of those who now work with their hands would
become State officials, or Members of Parliament,
while some of those who now direct labour might
have to become labourers in their turn. But the
bulk of those who work to-day with their hands must
continue to do so, because our present economic
conditions require it. Mere State ownership of
capital cannot help them one whit. Their salvation
can come only from yet more Invention and more
Thrift, by whose kindly aid their toil will be reduced,
their mental responsibility increased, and their pay
augmented.

In Diagiam Number Five an attempt is made to
show approximately the proportions in which, under
our present conditions of supply and demand, the
three factors of Handwork, Headwork and Capital
are respectively recompensed.

There is one point, in relation to this recompense,
which deserves special mention. A Socialist has

THE THREE ECONOMIC FACTORS 93

recently asserted that the "ruling class" — i.e. the
Rich and Upper JNIiddle Classes — " are greedy, avid,
chagrined at not having stripped the workers quite
bare in the process of exploitation." It is also
asserted that the "• workers," i.e. those who work
with their hands, are the sole " producers " of wealth.
If the second of these two assertions be true, why
is it that the " greedy " ruling classes cut down their
own profits by paying salaries and wages to anybody
except the actual producers ? The answer is that
employers are compelled to cut down their profits in
this way, because they find that the wants of the
community cannot be supplied merely by capitalists
and handworkers, i.e. headworkers must be employed
also. The extent to which this is done may be
seen from Table A, which sets out 700,000 Lower
Middle Class families receiving £250,000,000, and
2,000,000 families of non-manual wage-earners re-
ceiving £247,000,000. Making a moderate deduction
for such employers or handworkers as may be
included in these groups, we can estimate that fully
2 million famihes receive each year something like
400 millions sterling in payment for their non-manual
taskwork. That is to say, One-Fifth of our popula-
tion, independently of any small amount of capital
they may own, receive over One-Fifth of our national
income in exchange for work which is neither labour
nor profit-making.

It is said that " money talks." Certainly no better
proof than tlie foregoing figures could be found to
support the contention that the production of wealtli
requires Head work as well as Handwork, the afore-
said £400,000,000 being paid, annually, to non-manual
workers, because it /itis to be paid to ensure their
necessary work being done. If their work were not

94 THE THREE ECONOMIC FACTORS

found necessary, it is quite certain that they would
not be paid for doing it.

An illustration of this is to be found in the case
of any Railway Company, whose staff includes not
only a little army of handworkers, such as drivers,
stokers, porters, platelayers, etc., but also another
little army of head workers, such as managers, station-
masters, inspectors, foremen and clerks.

Higher up in the scale of pay the same principle
applies. A considerable number of those in the
Upper Middle Class are employees, whose living is
obtained by the exercise of their brains, without any
investment of capital on their part. Conspicuous
among these are various JNIanagers of Railway
Companies, of Banks, of Insurance Companies, of
Shipping firms, of Engineering factories, and of many
other large enterprises. Such men receive salaries
of £i,ooo, £2,000, or more, per annum, and they are
employed because they have to be retained, in
preference to less highly-paid men, in order to secure
that the businesses they manage shall be conducted
to the best advantage. That they are voluntarily
paid such large sums, by their " greedy " employers,
is proof positive that their Headwork is imperatively
necessary.

Emphatically the handworker is not, under our
present highly developed industrial system, the sole
'* producer " of wealth. A hundred years ago he
often did occupy that position, since the little raw
material he needed he was able to buy, his tools were
his own, his muscles supplied the required force, and
his manual skill did the rest. If ever there was a
producer, he was one.

But nowadays this is all changed. The thousands
of tons of material for the Forth Bridge, for instance,

THE THREE ECONOMIC FACTORS 95

could never have been bought by the workmen who
erected it. Nor could they have provided, out of
their own resources, the costly machine-tools, cranes,
tackle, etc., necessary for the construction. No
muscular force at their personal command could
possibly have lifted the huge girders into position.
These three things, material, tools, and power, were
contributed by the investor of capital, and it was not
till after they had all been provided, and brought to
the spot, that the manual skill of the handworkers,
guided by expert engineers, was able to do the rest.
Obviously it would be absurd to claim that Labour,
and Labour alone, produced the Forth Bridge.

Much has been made of the statement that " Wealth
cannot be produced without labour ; therefore to the
labourers all wealth is due." As a piece of bad logic,
this is on a par with the remark that " No dinner can
be produced without a cook ; therefore no one but
a cook ought to eat a dinner." The fallacy is even
more apparent if the sentence be turned into the
reverse form, so as to produce the statement that
" Wealth, under modern conditions, cannot be pro-
duced without capital : therefore to the capitalist all
wealth is due."

The fact cannot be too strongly grasped that wealth,
in the industrial world of to-day, cannot be produced
by Labour alone, nor by Capital alone, nor by Head-
work alone. All three must combine for the purpose.
To assert that labour is all that is needed to produce
everything for the body politic, without the help of
capital or })rains, is as fallacious as it would be to
assert that the limbs are all that is needed for the
body physical.

CHAPTER XV^II

THE OWNERS OF CAPITAL

The next question is as to who, at the present
time, are the owners of the aforesaid ii,ooo milHon
pounds' worth of private property. There is no way
of obtaining any accurate information on this point,
and the only figures which can be given are merely
approximate ones. In Table J, drawn up by the
writer, an attempt has been made to arrive at some
idea of the distribution of the capital owned in the
United Kingdom. Its last line, comprising 2,500,000
families of the Unskilled Class, treats them as having
so little property as to count for nothing in the
estimate.

The line above this represents the Artisan Class,
say 6,500,000 families. Their accumulated wealth
has already been quoted as not less than 1,000 millions
sterling, and the same amount is here used again. It
averages £154 per family.

This leaves £10,000,000,000 as the extent of the
capital owned by the Middle and Rich Classes, and
the problem is as to how far it is held by each class.
For this purpose recourse can be had to the Death
Duty records, which show for each year the number
and size of the estates which pass on the decease of

their owners. It then remains to multiply these

THE OWNERS OF CAPITAL 97

yearly records by some suitable multiplier, in order
to arrive at an estimate of the number of capitalists
living, and what they respectively own. There has
been much discussion as to what this " multiplier "
should be. If the number 30 be taken, the theory
then is that for every property owner dying in one
year, there are thirty similar property owners living.
On this basis our table has been completed, the figures
being chiefly made up from an estimate on the same
basis which will be found on page 69 of Riches and
Poverty.

This estimate has been very ingeniously compiled,
and it gives a total of 2,342,670 persons owning 8,313
millions of capital. I'he amount in question however,
as Mr. Chiozza Money points out, is about 2,500
millions less than his own estimate of 10,963 millions
as the value of our privately-owned property. He
explains this shortage by the " considerable " amount
of property which evades the Death Duties, by pro-
perty of the poor not included, and by property
passing by gift of the living. JNlaking allowance for
these items, he expresses the opinion that his estimate,
though not representing the whole of the property of
the persons to wliom it relates, nevertheless gives as
accurate an idea of the manner of distribution as
though it dealt with the whole.

In view of this opinion, the writer has felt justified
in increasing proportionately the amounts set against
tlie wcaltiiier group of persons in tliat estimate, so as
to bring the total owned by the Classes up to tlie
10,000 millions mentioned above. In this way Table
.1 has been completed, but the warning must once
more be given that its figures are merely the result
of sleTideily-bascd guesswork. It would be quite
incorrect to quote them as containing anything

qS THE OWNERS OF CAPITAL

like the comparative accuracy of those in Tables A
or C.

In particular the figures 283,920 and 1,459,980, in
the left-hand column of Table J, seem to the writer
to be understated, since practically every Middle
Class and Artisan family owns some capital, though it
be only clothes, furniture, and cash in hand. He also
thinks that the item of £338,000,000 is much too low,
owing to an overstatement of the amounts entered
(in the upper portion of the same column) as owned
by the richest people.

From Table J it would appear that there are 240
millionaires in the United Kingdom, owning between
them property worth 800 millions. Sir Henry Primrose
(365, Answer 56) has estimated their number at 237,
with the much less capital of 465 milHons. However
the former estimate has been left as it stands, and
according to it these very rich people own over 7 per
cent, of the capital of the United Kingdom. As
compared with the total of male adults in the country,
only I man in 43,000 is a millionaire.

The aggregate of the first three lines of this table
comprises 8,970 persons, owning 3,318 millions, and it
approximates fairly closely to the first group in Table
B. This is rather to be expected, since the richest
men generally have a large income by reason of their
owning a large capital. It is true that certain Ministers
of State, Judges, Archbishops, authors, barristers,
surgeons, and other exceptional people, receive large
sums in salaries and fees, with little or no investment
of capital. These however, relative to the Rich Class
generally, are few and far between. It will probably
be not far wide of the mark, therefore, to assume that
the 8,970 people, entered at the top of Table J, are
all included in the group of 10,000 families appearing

THE OWNERS OF CAPITAL 99

at the top of Table B, and that the latter group own
about 3,400 millions of capital. At 3 per cent, this
capital would produce 102 millions per annum, or
about what might be expected in view of the fact that
the income received by the Rich, as shown in Table
B, is 121 millions yearly.

One of the most satisfactory features of Table J is
to be found in the fact that its seventh group com-
prises no less than 481,740 persons who own on an
average nearly £5,000 each. The existence of so large
a number indicates that accumulated wealth, so far
from being concentrated in the hands of a few rich,
is becoming more and more spread among the general
community. As Sir Henry Primrose has pointed
out (365, p. 8) the real characteristic of the dis-
tribution of wealth in this country is the very large
number of people moderately, but not extremely,
rich.

Further, there is no appreciable sign, in this country,
of the large capitalists combining to inflate prices and
to crush out the small capitalists. As the Poor Law
Commission Report reminds us : —

" People do not realize how much more important
the small employer is than the large employer: if you
define the large and small employers as men who can
or who cannot pay heavy compensation claims without
feeling them, you might say that more than two-thirds
of the working class work for small employers " (Cd.

4499' P- 315)-

According to Table .J, there are in this country
598,770 large capitahsts, and 1,743,900 small ones.
The former group prol^ably own most of the
£1,840,000,000 of British capital invested abroad,
and to that extent do not directly employ much

100 THE OWNERS OF CAPITAL

of our conipjitriot labour. 'I'he latter group include
many people whose accumulated wealth is too small
for them to engage in business on their own account.
On the whole, we shall probably not be far wrong in
concluding that one Briton in nine owns capital suffi-
cient to enable him to be an employer.

It must not be assumed, however, that " once an
employer, always an employer," since it constantly
happens that those who inherit or create capital are
deprived of it by ill-luck in its investment, by changes
of market, by bad judgment, by lack of attention to
business, etc. Capitalists are frequently represented
to be a compact body, to which no outsiders can
gain access, united as one man to crush Labour and
to maintain their monopolist interests. This is
absolutely the reverse of fact. Except in a few
special cases, there is relentless competition between
capitalists, each one striving his utmost to take
business fi'om his competitors. In the course of
this struggle some succeed and some fail, the result
being that a considerable portion of the body of
capitalists is constantly changing. Many of them,
as per the examples quoted on p. 6i, rise up from
the humblest ranks to affluence, while many others
sink down into poverty. Of the latter we do not
hear much, because they pass out of the public eye,
but they are much more numerous than many
people would suppose.

The result of there being so many capitahsts,
strenuously competing against each other to serve
the public, and of capital increasing more than twice
as fast as population, is that the rate of interest on
capital constantly tends to fall to a lower level, while
salaries and wages constantly tend to rise to a higher
level. Competition between the masters is at the

THE OWNERS OF CAPITAL loi

root of all improvement in the condition of their
men.

In relation to this point, it is interesting to note a
sentence from a speech recently made by a Socialist
in the House of Commons. He is reported to have
said that " ^Vhen there was competition for employ-
ment, there was always a tendency for wages to be
forced down." This is one of those half-truths more
misleading than downright falsehood. The other
side to it is that " When there is competition between
employers to obtain the services of workmen, there is
always a tendency for wages to be forced up." The
latter is exactly what has happened during the last
sixty years, as shown by the " level of wages " figures
on p. 6, and this forcing up of wages will continue
(unless checked by enterprise-crippling legislation) so
long as capital grows faster in amount than the wage-
earning population grows in numbers.

It is simply a matter of supply and demand. A
good illustration may be found in the case of female
domestic servants. Owing to the many new occupa-
tions now open to women, enabling them to become
clerks, typists, waitresses, etc., and to the modern
dislike for household work, the supply of domestic
servants has gone down, while the demand for them
has gone up owing to the steady growth in tlie
number of middle-class households. The result has
been an increase, during the last forty years, of some-
thing like 150 per cent, in the rate of wages of such
servants, and this, be it noted, without the assistance
of any trade union. A similar improvement, though
not nearly so marked, is taking |)lace in other trades
throughout all countries where modern capitalistic
methods prevail, because tlie competition between
employers, to secure eflicient labour, is keener than

102 THE OWNERS OF CAPITAL

the competition between efficient labourers to secure
employment.

All commercial transactions, so long as active
competition exists, have this two-sided character.
Whether the thing bought be Goods, or Labour,
or Headwork, or the use of Capital, the procedure is
the same. The buyers compete against each other in
buying, and the sellers compete against each other
in selling, each one endeavouring to make the best
possible bargain for himself. This " higgling of the
market " ends by agreement as to the price in each
transaction, and it is precisely by the constantly
varying fluctuation in values that the law of supply
and demand operates. Without competition there
is no such thing as market or price.

Under Socialism, on the other hand, the purchase
of Labour or Headwork would be an absolutely one-
sided affair. Some 18,000,000 people would be eager,
as now, to get the best possible pay. Their competi-
tion between each other, to sell their work at its
highest price in accordance with its merit, would be
as keen as it is at present.

But there would be no " higgling of the market "
for them, since Socialism tolerates no employer but
the State, and so would deprive all employees of an
open market in which to sell their services to the
best advantage. Every worker would be at the
mercy of the official appointed to control him.
Under Socialism no employee of the State, chafing
under a harsh or unjust superior, or requiring better
pay, or wishing to alter his occupation, or desiring to
change his residence, could seek to improve his
position (as he can now) by offering his services to
some other employer. There would be no other
employer. The Socialistic State, through its auto-

THE OWNERS OF CAPITAL 103

cratic officials, would take care that the open market
for Labour and Headwork was closed, and kept
closed.

To those of us who believe that strenuous com-
petition between employers is the key not only to
economic progress, but also to the welftu'e of their
employees, the prospect of such a red-tape monopolist
control of all enterprise is appalling.

CHAPTER XVIIl

THE REWARDS OF CAPITAL

Any attempt to estimate the advantages, which
capital confers upon those who possess it, must
necessarily be very approximate. The first step is
to get some idea as to the position of the investor
who is so well off that he can, without doing any
work, live upon the return from his capital. The
word " return " is here used to denote the average
annual income he receives from his investment in
some business wherein he is merely a sleeping
partner or shareholder, or from property he has let
on lease, or from money he has lent out at interest.
In other words it represents the yearly amount
which, in free and open competition, his fellow-men
are willing to pay for the use of his accumulated
wealth, without any accompanying exertion on his
part.

This amount varies in different countries and at
different times, according as capital may be scarce
or abundant, as trade be good or bad, or as the risk
of loss be great or small. In some parts of the
world the return is as high as 12, 18 or even more,
per cent, per annum. In the United Kingdom
however it is probably not more than 3 per cent.

At first sight this may seem low, considering that

104

THE REWARDS OF CAPITAL 105

some imestments yield a considerably higher per-
centage. But since '' high interest means bad
security," returns of 6, 8 or 10 per cent, are rare,
and certainly do not apply to more than a triHing
portion of the assets forming our national capital.
Even picked investments, when made on a large
scale and reasonably free from risk of loss, yield
but little over 3 per cent. A leading Insurance
Company, for instance, recently announced that the
average rate of interest earned on its total funds
was £3 14.V. per cent. Upon capital invested in
British railways the average dividend is £3 8.9. 5^/.
per cent. (Cd. 4258, p. 305). On consols it is
nominally £2 io.S'., and the reduction to that rate
was made by JNIr. Goschen, under his conversion
scheme of 1888, avowedly on the basis that the rate
of interest at which the Government could borrow
had fallen to that level : at the present market price
consols yield an actual return of about 3 per cent.
Last year it was reported that £72,750,000, invested
in I^ondon's railway, tube, omnibus and tramway
companies, had paid in interest only a little over
2 per cent.

Some forms of property, such as vacant lands and
houses, furniture, clothing, jewellery, etc., together
with all tlic capital employed in unsuccessful busi-
nesses, yield no return whatever. According to
the Census of 1901, for example, there were (ex-
chidirig houses used for business or other purposes,
but without inmates on the census night) at that
time no less than 259,795 houses unoccupied in
England and Wales (Cd. 2174, p. 193), the value
ol" which was probably £150,000,000 to £200,000,000.
^Xnolhcr illustration is to be found in the fact that
in 1906 no (li\i(lciul whatever was paid upon

io6 THE REWARDS OF CAPITAL

£77,855,076 of the capital invested in British rail-
ways.

On the whole it is doubtful whether the capital
of this country, wlicn merely lent or invested, and
therefore not administered by its owner, yields to
him on an average as much as 3 per cent, per annum,
if due allowance be made for the risks of trade,
and for the considerable destruction of capital —
probably at least 100 millions per annum — through
unremunerative business. But the error, whether
it be a little below or a little above the rate named,
does not affect to any material extent the conclusion
to which the figures will lead.

We can now, upon this 3 per cent, basis, recon-
struct Table J in shortened form, adding to it a
final column to give us some idea as the average
" return " receivable by investors of capital, inde-
pendently of any personal work they may do them-
selves. The return in question appears, in this
shortened Table K, at 330 millions per annum.
This figure may be compared with the 276 millions
mentioned by Sir Henry Primrose (365, p. 243)
as the income on a smaller amount of capital, but
at the " high rate," as he calls it, of 4 per cent.

The next step is to arrive at the position of the
employee who is paid for his services, apart from
what he may also receive as an investor. Beginning
with the poorer people, we have already seen by
Table B that the gross income of the Artisan and
Unskilled Classes is 1,022 millions. Deducting from
this 30 millions, being the return at 3 per cent,
upon their capital, we get 992 millions as the amount
they receive yearly in wages alone.

Some of the Rich and many of the Middle Class
live upon the fees and salaries they earn, and, when

THE REWARDS OF CAPITAL 107

they also own capital, invest it outside of the busi-
ness in which they are employed. Some idea of
their earnings may be obtained from the following
figures (Cd. 3686, p. 225), relating solely to incomes
over £160 per annum : —

Profits from Businksses, Concerns, Professions,
Employments, etc., in 1905-6

379,456 persons (excluding employees) . Gross income, £107,022,457

100,574 ,, employed in private busi-
nesses ....,, „ 23,401,641

402,503 ,, employed by Government

and Companies . . „ ,, 93,185,804

These items total over 223 millions, out of which
about 150 millions may be taken as income earned
in fees, salaries and other remuneration not involving
the investment of capital.

If we now combine Table C and Table K, we
get in Table L a summary giving an approximate
idea of the income, and the expenditure, of those
who pay income tax and those who do not.

With the data furnished by these Tables, we are
in a position to consider some of the exaggerated
statements which have been made as to the re-
muneration of capital. They recall the old story
of the foreigner wlio saw outside the Royal Ex-
change, London, the motto " The Earth is the
Lord's and the Fulness thereof," and was mucli
impressed to learn therefrom that the property of
the British aristocracy was so extensive. Really
the Socialists miglit be supposed to liavc taken as
their mf)tt() a ])aro(ly of this, '' Tlie Earth is the
Capitalist's and the Income thereof," to judge by
their persistent overstatement of the income of those
who liave inherited or saved wealth.

(3nc of tlicir oft-quoted phrases is worth examining.

io8 THE REWARDS OF CAPITAL

It asserts that " the country is almost entirely owned
and run by a small group of people." This is correct
enougli, provided there is no misunderstanding as
to what is meant by the words " owned " and
"small." Table J shows that the bulk of the ac-
cumulated wealth of the United Kingdom is owned
by about one-ninth of the population, and as the
ownership of capital carries with it the control of
industry, it is true that the country is "run " com-
mercially by this group of one-ninth of its popula-
tion. In this there is nothing surprising or unusual.
Every collection of human beings, be it in an office,
a factory, a shop, a steamer, a coal-mine, an orchestra,
a co-operative society, a tennis club, or what not,
is run by a small minority of its members, and
experience has shown that success can be obtained
only in this way. No army, for instance, could
expect to win its battles if all, or the majority, of
its members were officers.

The most striking illustration of this fact is to be
found in the practical working of modern democracy.
The Government of the United Kingdom, which
came into office in 1906, was formed after an election
resulting as follows : —

Disposition of Members of the

Voting Power. House of Commons.

Liberal, Labour and Nationalist . 3,394,34*3 47% 5^2 77 %

Unionist 2,557,928 35 158 23

Did not vote .... 1,314,434 18 — —

Total of Voters on the Register . 7,266,708 100% 670 100%

Majority 836,418 11%

Thus the Government, acting on behalf of 7,266,708
electors, derived its power from 836,418 of them.
That is to say, the country was " run " politically, as
it is commercially, by a group of one-ninth of its

THE REWARDS OF CAPITAL 109

members. This group asserts itself through certain
representatives selected as leaders, these forming the
Government. Wliat follows is well described in
the following : —

" An aggregate salary list of over £160,000 per
annum is divided among sixty placemen, many of
whom have received, or will receive, in addition
honorific distinctions which have a cash value. We
allow one-sixteenth of the members of the House
of Commons to exercise the authority of the whole.
INlillions of pounds are annually voted without even
the form of debate. The central Government — that
is, the sixty placemen— througli the permanent de-
partments and the Cabinet Council have absorbed
nearly the whole of the power of the House of
Commons. The Standing Orders were so amended
in 1892 as to give the Government nine-tenths of
the time of the Parliament." — The Referee.

Xo better example could be found of the fact that
whenever people associate for a common object
there must be few Directors, and many Directed.
If State Socialism were ever established, its power
would be exercised in precisely the same way, not
by the " whole people," but by an oligarchy selected
from a ParHamentary majority of them. A true
pohtical democracy could not exist unless every-
body \ otcd alike, and as this can never happen there
never will be such a democracy.

The phrase just quoted, that " the country is
almost entirely owned and run by a small group
of people," suggests an inference which is quite in-
correct, i.e. tiiat this small group of people use their
capital in such a manner as to run the country almost
entirely for their own benefit. 'I'liis is (piite untrue.
As a matter of fact the ownership of a certain

no THE REWARDS OF CAPITAL

portion of wealth does not, by any means, necessarily
carry with it the receipt of a corresponding portion
of income. A railway manager, for instance, may
earn £3,000 or £4,000 a year as salary, without
owning any capital at all, while a man possessed of
£20,000 of capital may, if he be using it to run an
unsuccessful business, have no income whatever. In
order to make this point clear we cannot do better
than set out, as follows, some of the figures from
Tables K and C :—

Tlie Rich Class owns 31 per cent, of capital, enjoys 5 per cent of income
Tlie Middle „ 60 „ „ „ „ 28 „ „ „

The Masses „ 9 „ „ „ „ 67 ,, „ „

In Diagram Number Four, on page 158, this disparity
between the ownership of capital, and the enjoy-
ment of income, is fully evident. The Rich own
nearly one-third of the capital, but enjoy only one-
twentieth of the income. The Middle Class own
three-fifths of the capital, but enjoy only a little
more than one-quarter of the income. Finally the
Masses, owning less than one-tenth of the capital,
enjoy two-thirds of the income.

The foregoing percentages tell their own story,
but the actual reward to capital is even less than
they imply, since many of the Middle Class, who
earn good salaries, possess but little capital. In
Table L it is shown that 130 plus 1,000 equals 1,130
million pounds, out of 1,500 millions, are spent by
employees. In other words, nearly Four-Fifths of
the expended income of the United Kingdom is
enjoyed by those of its workers who take no risk
of loss during their employment. We can also see,
from the same Table, that a further 170 millions,
and also a considerable part of 200 millions, is enj oyed

THE REWARDS OF CAPITAL iii

by those workers who take the full risk of loss in
managing their own business — the " captains of
industry " who are commercially the most valuable
people in the community. On the whole it is
probably correct to assert that more than Nine-
Tenths of our annual revenue expenditure represents
income earned by those (i) who act as employers
in administering their own capital ; or (2) who as
employees contribute headwork in managing the
capital or labour of others ; or (3) who as employees
contribute the work of their own hands.

There remains less than One-Tenth of our revenue
expenditure, say 140 millions, representing income
derived entirely from investments, i.e. towards which
the investor contributes nothing in the way of
personal exertion, and which, in modern political
terminology, is " unearned income." Of this, on
the basis of 3 per cent, per annum on 1,000 millions,
the Artisan Class receives 30 milhons. A further
portion of it is taken by that large group of JNliddle
Class people whose earnings or salaries are supple-
mented by dividends from their private investments.
Yet another portion of it is received by traders or
professional men, both in the Ricli and Middle
Classes, who have money invested outside of, as
well as in, their own businesses. Finally tliere is
the nmch smaller group of people, ranging Irom
the rich idler to the poor widow left with a pittance,
who '• live on their means."

CHAPTER XIX

CAPITALISTS AS TRUSTEES FOR THE PUBLIC

But the objection may be made that it is not right
here to deal only with the revenue spent by each
class, ignoring the annual savings. Surely, it will be
argued, we ought to treat as " enjoyed " by the Rich
and Middle Classes the 178 millions they put by each
year for the benefit of themselves and their children.
The point has already been referred to on page 22.
It is an important one, as it underlies the whole ques-
tion of the private ownership of capital.

Even amongst people who ought to know better,
there is an idea that the act of " saving " is similar to
the act of a child who does not eat at table all the
cake he might have shared with others, but slips a
piece into his pocket to consume it afterwards in
solitary greediness. Such an idea is utterly incorrect,
since the essential object of having capital is not to
consume it. As the old saying runs, we cannot
eat our cake and have it too. What really happens,
when a man by thrift converts part of his income into
capital, is that he dedicates that part to the Service of
Mankind. He uses it to supply the needs of his fellow-
men, and at the same time to provide a livelihood for
the workers who co-operate with him in satisfying those
needs, retaining for himself only the uncertain chance

112

CAPITALISTS AS TRUSTEES 113

of a final margin of profit. The very last thing he
desires is to leave his capital idle, for exactly the same
reason as an opera-singer dreads leaving his voice idle,
since in that event there is no income to be derived
from it. Further, like the singer's voice, it depreciates
when not in use.

The privately-owned capital of tlie United Kingdom
is 11,000 millions, and the yearly income shared
amongst the population is 1,750 millions. That is to
say, each £630 of capital produces every year an
average total of £100 in the shape of personal income.
Now, the people who have accumulated this capital
have certainly not " enjoyed " it. Exactly the con-
trary. Had they enjoyed it, they would have spent
it as income, and it would not now exist as capital.
It is precisely because they refrained from enjoying it
that they have it.

But it may be said that they enjoy the income it
produces. This is not so, for they enjoy only a part
of it, and sometimes only a very small part or none.
When, for example, a man succeeds in saving £630,
he spends in most cases but a fractional portion of the
new income created by it. Should he invest this
amount of capital, the annual average income of £100
it produces will be divided on an average as shown in
the last cohunn of Table L, and in Diagram Number
Five.

A good idea as to what thrift means is given by
tliis diagram. The £630 of capital, indicated by the
left-hand block, may take years and much self-denial
on the part of the man who accunuilates it, while the
annual revenue which may (or may not) be obtained
by him from it, as per the upper portion of the
right-hand block in tlic diagram, looks very small
in comparison.

114 CAPITALISTS AS TRUSTEES

On the basis of the figures in Table L, and taking
the coinitry as a whole, we can affirm that those
people who save enjoy, as investors, only about
One-Eighth of the new annual income resulting from
their thrift. Three-Fourths of that income is taken
as salaries and wages, and tlie remaining One-Seventh
is put by to add still more to the accumulated capital
of the country.

Two points are worth noticing with reference to
Table L and the said diagram. In the first place the
percentage of 57, representing what is enjoyed by
the Masses, corresponds almost exactly with the
Board of Trade estimate of the wage-cost of the pro-
ducts of this country (Cd. 1761, p. 360). In the
second place, the percentages given are all average
ones, and tliey vary enormously according to cir-
cumstances. One commercial venture, for instance,
may show a handsome profit, thereby causing 14 and
12 to be very much larger than is shown on the
diagram, while 17 may be only rather larger and 57
perhaps remain unaltered. Another venture, result-
ing in a heavy loss, may not only cause 14 and 12 to
disappear entirely, but may also destroy a large part
of the investors' capital in paying the salaries and
wages marked 17 and 57.

The 250 millions, now being saved annually in the
United Kingdom, will produce each year an additional
income of 40 millions, assuming that the conditions
of commerce remain in the future the same as they
are now. The significance of this statement can be
seen by the following : —

Total. Annual Increase. Rate of Increase.

Population about 44,000,000 400,000 Less thaii i per cent.

Capital ,, £11,000,000,000 £250,000,000 Over 2 per cent.

Income „ £1,750,000,000 £40,000,000 „ „

CAPITALISTS AS TRUSTEES 115

The growth in our population represents about 90,000
new tamihes each year, and our steady increase in
capital not only provides new incomes for these new
families, but also raises the national income all round
by about eighteen shiUings per head every year.

Nothing could more clearly show the importance
of thrift as a factor in the national prosperity. If,
from to-day onwards, every one in the United
Kingdom were to spend as revenue the whole of his
income, so that in the future there should be no
addition to the savings already made, the total
capital of the country would not increase, and it may
be fairly supposed that the total income would not
increase either. But every year there are 400,000
additional moutlis to feed, so that year by year the
income per head would go down. Worse than this,
capital would become more scarce in proportion to
the population, and so become dearer, thereby still
further depressing the income of the poor.

The great safeguard against such a national
calamity is the practice of thrift, now becoming
increasingly common in all classes of society. The
man who does not " enjoy " the wealth he succeeds in
saving, but instead acts with regard to it as a trustee
for the public, does so primarily to make provision
for his future or that of his descendants. 15ut in so
(hjing he has " l)uildcd better than he knew," for he
has at the same time jidded to the resources of his
country by accumulating capital wlierewith to create
a new income rt/z/'fA hut for h'nii xco///d not avlst (it aU.
The ])ersonully scHish, but nationally unselfish,
nature of tlirifl will be apparent when it is remem-
bered tbat, taking the country as a wliole, each
person wlio accumulates £630, while providing from
his investment an income averaging from 1^'ive to

ii6 CAPITALISTS AS TRUSTEES

Eleven shillings per week to be enjoyed by his own
children, at the same time provides a new income
averaging Twenty-Two shillings a week to be enjoyed
by some future working-class family.

At present the motive, for making this all-
important annual saving, is an intensely personal
one, i.e. the desire to provide for misfortune or old
age, and the love for wife and children. It is one
of the worst defects of Socialism that it would by
removing this motive weaken the family tie, making
it impossible for national thrift to be undertaken by
any one except the State. What the result would
be no one can tell, but so far " for use, not for profit "
seems to have been the motto of many of our col-
lectivist bodies, accompanied by a lofty contempt
for anything like sound business methods or the
creation of new capital. It certainly cannot be
disputed that if the whole of our commerce were
to be run by Socialists on the same methods as
certain municipal undertakings, i.e. in flat defiance
of the economic basis of trade, the inevitable result
would be a rapid destruction of the national capital,
accompanied by an even more rapid decline in the
national income.

CHAPTER XX

FAMILY AFFECTION THE CHIEF INCENTIVE

TO THRIFT

An interesting feature of Table M is the number,
no less than 361,996, of women living on their own
means. In this group there are included various
widows or spinsters, members of the aristocracy and
otherwise, who own large fortunes, together with
a great many women of the Middle Class who live
in good houses, amid much comfort and refinement.
If, including all these fortunate ones, the aforesaid
361,996 women have an average income of £3 each
per week, they must own between them about one-
sixth of the capital of the country. In addition to
these there are many married women with incomes,
large or small, of their own. Finally, since 45 per
cent, of the population consists of children, youths
and girls, all under twenty-one years of age, and
since not infrequently the father of a family dies
before his cliildren are grown up, there is always a
considerable amount of capital held by trustees on
behalf of minors.

An apt ilhistration of this point was given in
a public statement, made in March 1908 by the
Cliairm.in of Meux's IJrewcry Company, Ltd.,
specifying as follows the holdings of the De})cnture

117

ii8 THE INCENTIVE TO THRIFT

Stocks and Preference share capital of that Com-
pany :—

By members of the licensed and allied trades .... £8,86i

By business classes, such as banks, insurance companies^ invest-
ment trust companies, merchants, etc. .... 306,951

By members of the professional classes, such as barristers,
solicitors, medical doctors. Army and Navy officials, and
others of unknown occupations ...... 520,698

By trustees under wills, etc., and by spinsters, married women,

and widows .......... 654,490

£1,500,000

It will be seen that over 43 per cent, of this total
is held by, or on behalf of, women and children.

Another illustration, which refers to women only,
was given in the Financial News of March 2, 1909.
It stated that in twenty-two of the leading drapery
and furnishing houses in London, comprising 54,403
shareholders, about 7,600 — or one-seventh — were lady
shareholders.

Remembering that capital is the result of past
thrift, we have in these figures a strong confirmation
of the fact that the cliief incentive for a man to save
is that he may provide for the wife who may survive
him, and the children who will succeed him. Under
our present system the strongest force in the world,
the instinct for the effective continuance of the race,
is perpetually appealing to every right-minded man
not to spend all his earnings upon himself, but to set
by part of them to provide for the future of his
family. How well the appeal has been responded
to is shown by the £9,000,000,000 which has been
saved, in this country alone, during the last ninety
years. But for the existence of this incentive in the
past, it is safe to say that much of the capital of
to-day would never have come into existence at all.

THE INCENTIVE TO THRIFT 119

Let the incentive continue, and yet more capital will
be created. Destroy the incentive, as the Socialists
propose to do, and pri\ate saving at once stops.
What man would deny himself, and put by part of
his income for future use as industrial capital, if such
thrift on his part were treason to the State, punish-
able by seizure, before or at his death, of the property
he had been wicked enough to accumulate ?

Indeed, it may be safely surmised that under
Socialism no individual would ever try to save, or,
for that matter, would be allowed to do so. The
inducement to " put by " for the sake of liis children
would no longer exist, for that would be forbidden by
law. Nor, it may be shrewdly guessed, would he
be permitted to save up for his own future, since
what a man saves he uses as capital, and for him to
own capital would be an infringement of the State
monopoly as Sole Owner of Capital. Suppose, for
instance, that some official of the Socialist State,
after twenty or thirty years of self-denial, were to
accumulate enough property to start some com-
mercial enterprise on his own account. He would
then compete, with an excellent chance of success,
with some State Depaitment engaged in that same
class of enterprise, and the fact that his customers
came to him voluntarily, instead of patronizing the
State Department, would show him to be the better
servant of the public. But then he would become
a Private Capitalist, the very person abliorred of
Socialism. There can be no doubt that his competi-
tion would ])c crushed out, just in the same way as
private Penny Post was treated by (iovernmcnt
many years ago, viz. : —

" In the reign of Charles II. an enterprising citizen
of London, William Dockwra, set up at great ex-

120 THE INCENTIVE TO THRIFT

pense a penny post which deHvered letters and parcels
six or eight times a day in the busy and crowded
streets near the Exchange, and four times a day in
the outskirts of the capital. The improvement was,
as usual, strenuously resisted. . . . The utility of the
enterprise was, however, so great and obvious that all
opposition proved useless. As soon as it became
clear that the speculation would be lucrative, the
Duke of York complained of it as an infraction of his
monopoly, and the Courts of Law decided in his
favour" (Macaulay's History of England).

The very essence of Collectivism is that the nation
shall own everything, and that a numerical majority
of it shall manage all the business and all the work.
No person would be allowed to keep any property
yielding him an income, and consequently no person
would have any inducement to save anything out of
the salary allowed him by the State. In other words,
personal thrift would disappear.

There is, however, one form of saving certain to be
made, and that is the secret hoarding of gold to pro-
vide the means to purchase comforts for one's old age
and private provision for one's children. No Govern-
ment, however inquisitorial, could ever in practice
prevent this, and as there is only £100,000,000 of
gold coin in the country, a very few years of such
private saving would soon absorb a considerable
portion of this total, and thereby seriously disturb
the whole basis of our commerce.

Under Socialism, then, only the State could save
out of income, and convert into permanent operative
capital, the 250 millions needed each year to provide
work for future increase of population. Whether
this saving would ever be made is most seriously
open to doubt. The remark has been made " Why

THE INCENTIVE TO THRIFT 121

should I do anything for posterity ? Posterity never
did anything for me." This expresses exactly the
idea under which our experiments in Socialism
have hitherto been conducted. Nearly all our local
authorities have gaily continued to borrow money, the
amount having increased, in the last twenty-two years,
from 193 millions to 565 millions (Cd. 4258, pp. 49-55)*
lea\ang to their successors the burden of paying
interest upon this huge debt, the principal of which
is likely to be a millstone round the neck of future
ratepayers for generations. Further, some of these
authorities, in order to gain favour with the poorer
hands who form so large a proportion of the local
electors, have been deliberately paying wages higher
than any private employer could possibly afford to
pay. Such excess in wages, over and above the
market rate, represents in effect the destruction of
so much capital.

In Parliament, too, the same short-sighted disre-
gard for posterity is constantly found. Out of our
annual Imperial revenue of say £160,000,000, about
£19,000,000 is raised from the Death Duties, which
consist of capital seized by the Government and spent
in such a way that as capital it is destroyed. In
other words the State sets us all an example of un-
thrift by "waiting for dead men's shoes." On coming
into its inheritance it cannot husband its windfall for
future use as capital, as a prudent lieir would do, but
proceeds to spend it all on current outlay. It forgets
that the State after all is only tlie people who com-
pose it, and that wlicii the State lives on the capital
of its citizens, it is in j)recisely tlie same position as
the spendUirift wlio li\cs on its own. By some, it is
true, these duties arc defended on the ground that
they are really deferred income tax. From this

122 THE INCENTIVE TO THRIFT

view the writer strongly dissents, if only on the
ground of their unfair incidence, the fact being that
some people have a large capital with a comparatively
small income, while many others have an excellent
income but hardly any capital. There might be some
logical basis for the Death Duties if a man's income
were always exactly proportionate to his capital, and
if property owners always died at regular intervals,
but it is notorious that in neither of these respects is
there any uniformity.

A further discouragement to thrift is given by the
extra taxation, apparently likely soon to be seriously
increased, of what is called "unearned" income, i.e.
the return, subject to increment or decrement as the
case may be, upon savings made in the past. On
every hand, indeed, there is a tendency to treat as an
enemy to society the man who, by saving part of his
income, is one of its truest benefactors.

How much worse than this is likely to be the
result of that State Socialism which, by forbidding
bequest, is proposing to make it impossible for the
exertions of any man, during his lifetime, to benefit
his children after his death. Salaries and wages, now
regulated by the law of supply and demand, would
under Socialism be controlled solely by a Parlia-
mentary majority. The party getting into power
would, it may be surmised, be the one promising most
to the electors, and — since most of the electors would
be wage-earners — it can hardly be doubted that
political pressure would force wages up above their
market- value, and that the needs of posterity, in the
shape of savings for future use, would be conveniently
forgotten. What chance of election, to the Socialist
Parliament, would a candidate have who was alarmed
at the State not saving enough, and in his election

THE INCENTIVE TO THRIFT 123

address gave out that his poHcy was to reduce wages
all round, when the rival candidate sought favour by
promising to support a corresponding rise in wages ?
In effect, SociaHsm means that employees are to fix
their own pay as high as they choose, without any
regard to economic considerations. To this kind of
thing there can be but one end, and that is National
Bankruptcy.

CHAPTER XXI

UNEARNED INCOME

It is a common device of the Socialists to pretend
that the population of this country is divided into
what they call " two nations," the one consisting of
luxurious monopolists who appropriate all the profits
without doing any work, and the other of strenuous
manual labourers who do all the work in return for
a bare subsistence. The owner of property is de-
nounced as idle and unprofitable, and his rent or
interest is stigmatized as the tribute of industry to
laziness. He is execrated as a drone or a parasite,
and is usually reproached as one who wallows in
luxury and squanders his income on vicious pleasures.
His class is considered as doing no work whatever,
and as being merely a clog upon industry. In
relation to these denunciations, it will be convenient
to consider what proportion of the population can
with any accuracy be described as the " idle rich."
But, before doing so, reference may be made
once more to Diagram Number One, which shows
that 75 per cent, of our national income is enjoyed
by 72 per cent, of the population, i.e. by the Lower
Middle and Artisan Classes. So far from there
being " two nations," widely separated into plutocrats

at the top and indigents at the bottom, our com-

124

UNEARNED INCOME 125

munity consists chiefly of one central group com-
prising 33,000,000 people whose family expenditure
averages £157, and who are therefore neither rich
nor poor. These people form the main body of
our industrial army, with a small advance-guard of
the rich and well-to-do in front of them, and a larger
rear-guard of inferior soldiers and camp-followers
behind them.

Then as to the "idle rich." The assertion has
been made {Fabian Tract No. 5, p. 4) that —

" In 1901 there were 663,656 adult men who did
not even profess to have the shadow of an occupation.
Most of these form the main body of the idle ricli —
persons who take no useful part in the business of
life — who Hve in the main upon rent and interest,
without any merit or exertion of their own."

From the use of the word " most," in this statement,
it may be presumed that in the opinion of the Fabian
Society there are in this country about 500,000
persons belonging to the " idle rich " class. No
definition of the word " rich " is here given, so we
must get it elsewhere by quoting a certain Member
of Parliament, whose leaning towards Socialism is
indisputable, who recently gave it as his opinion
that a rich man is one " with some thousands a
year." This also is somewliat vague. Let us take
it, however, to mean an average of £5,000 a year,
wliich is less than lialf what British ricli people
actually have, as shown by Table B. Multiplying
this sum by 500,000, we then get the preposterous
figure of £2,500,000,000 as the annual income of the
idle rich in this country !

The absurdity of such a total will be appreciated
by rclcrriiig to 'I'able C, which shows tiiat the

126 UNEARNED INCOME

10,000 really rich people in the United Kingdom,
each having an income of £5,000 and upwards,
receive but £121,000,000 between them, and spend
but £70,000,000. Further it is not disputed, even
by Socialists, that some of the Rich, and many of
the Middle Class, do work hard and render good
service to the country. Clearly, then, the estimate
of 500,000 is either ridiculously large, or amongst
that number of idle people the great majority are
not at all rich.

Now it is obvious that a man who is both rich
and idle must live entirely upon the return from
his investments, and a reference to Table J shows
at a glance how few can occupy such a position.
Only the first four groups in that Table have capital
enough for the purpose, and in the last of these,
with an average capital of £94,000, the annual return
to the investor, even at 4 per cent., would be under
£4,000 per annum. But even if this gi'oup of
12,570 be included, we arrive at a total of say 21,000
people as the very maximum number of those who
could possibly belong to the " idle rich " class of the
United Kingdom.

The wealthiest among this total are the 250 people
who form the first group in Table A. In respect of
these, Sir Henry Primrose is of opinion (365, p. 6)
that most of their income is derived from their
property, and not from their personal exertions.
This seems reasonable enough, since very few people
with an average income as large as £80,000 can be
expected to earn so great a sum every year by
acting as partners in some firm, or as Company
Directors. The bulk of what they receive must
inevitably be derived from their investments.

With regard to the second, third, and fourth

UNEARNED INCOME 127

groups in the same Table, ranging from £40,000
down to £5,000, Sir Henry Primrose points out
that many of these people do not receive such
incomes at all regularly, e.g. a man may make his
£40,000 one year, but he perhaps makes very much
less or nothing for the next two or three years,
and so on. In other words, many of those who
are only fairly rich derive their income largely from
their personal exertions, and not mainly as investors.

The four groups in question comprise 10,000
people, who receive between them 121 millions of
income. Adding to them some from the fifth group,
in Table A, to make up the aforesaid total of 21,000,
we get about 150 millions as the income of the
21,000 richest people in the United Kingdom. Of
this more than a third is saved, and so turned into
capital, leaving at about 90 millions the sum they
actually enjoy.

It is not disputed })y anybody that amongst these
21,000 capitalists there are a certain number of
wealthy men who do no work, or at most only a
little work of light cliaracter. But on the other
hand there are included amongst these capitalists
a far larger lunnber of wealthy or well-to-do men
who do so much work, and do it so well, that the
commerce of tlic country would fare ill without
them. These are the " captains of industry," whose
mission it is to form and conduct great entcr{)rises,
to organize and control large bodies of men, and to
undertak(; the responsibility and anxiety attendant
upon all extensive business. In this latter group
there are included our cliicl' financiers, bankers,
merchants, contractors, manufacturers, engineers,
sliipowners, brokers —in I'act all the most inipoilant
commercial people of the country. In view of the

128 UNEARNED INCOME

gigantic trade done by the United Kingdom, in
which these men take the leading part, it may well
be believed that the majority of our wealthy capi-
talists are not idle.

If the foregoing be even approximately correct,
it follows that the widely circulated assertion of the
Socialists, as to the idle rich receiving a huge
proportion of the income of this country, is gro-
tesquely inaccurate. Out of 10,500,000 male adults
in the United Kingdom, there may be as many as
2,000 or 3,000 rich men who live entirely upon
their investments, while the income they spend,
even if it be as much as £20,000,000 (out of the
£140,000,000 mentioned on p. iii), is only a little
over I per cent, of the total income spent each
year in this country. It is not possible, for the
reason given in Chapter VII., for the whole of this
income to be seized by the State, for redistribution
among the community. But, if it were, the Masses
would benefit thereby merely to the extent of ten-
pence per family per week, or less than one-third
of a penny per head per day. How comparatively
trifling this sum is will be appreciated when it is
remembered that the amount spent every year by
our working classes on alcohol is no less than
£100,000,000, which works out at an average of
six shillings per family per week (Rowntree's
Poverty). Thus the confiscation of the income
now enjoyed, by those of our rich people who live
on their means, would provide sufficient money to
pay merely one-fifth of the British workman's
drink bill I

Further it should not be forgotten that, in respect
of " unearned " income, the position of all classes
is essentially the same. A cautious middle-class

UNEARNED INCOME 129

man invests his accumulated wealth in order (i) that
he may receive a private income in addition to
what he earns day by day ; or (2) that he may have
means of support when he chooses not to work or
cannot get w^ork ; or (3) that he may make provision
for his illness, his old age or his children. Just in
the same way, though on a smaller scale, a thrifty
artisan invests his accumulated wealth for these
identical three purposes.

For instance, whatever money a Trade Union
receives as return upon its invested funds is " un
earned " income. When this money is used as
means of support for a working man who ceases
to work, either when he strikes, or is out of a job,
or is too old, it is precisely the same position as the
money received from his investments by a middle-
class man who ceases to work when he throws up
an appointment, or cannot get a new one, or retires
from business altogether. Both men, so far as they
are capitalists, are in the same boat, and if she be
upset they will go overboard together. Socialism,
as the expropriator of all capital, would seize the
1,000 millions belonging to the Masses equally with
the 10,000 millions belonging to the Classes.

CHAPTER XXII

INCREMENT CAUSED BY THE COMMUNITY

Much has been said recently, in relation to un-
earned incomes, as to the increase " caused by the
community." Even by some who are not Socialists
it is held that this increment, or part of it, should
belong to the State.

One obvious reply to this is that in many cases
there has been a " decrease caused by the com-
munity," and that if the State is to take the surplus
it ought also to make up the deficit. Everywhere
we find industries being depressed, and their pro-
prietors' incomes reduced, by changes of market or
by the advent of competing and better-equipped
industries. The rental of agricultural land, for
instance, fell from 69 millions in 1880 to 52 millions
in 1906 (see p. 77). The value of the shares of
horse-drawn omnibus Companies declined seriously
when motor-omnibuses were put on the streets.
Numberless other examples could be cited, and in
each case the depression has been caused by the
community's demand for different or better service.
But no one has ever suggested that the State should
compensate those whose investments have suffered
by the depression.

It is easy of course to pick out a few exceptional

130

INCREMENT 131

cases, e.g. certain wealthy ground-landlords in
London, whose increased rents are undoubtedly
due very largely to the growth of the community.
But what they own is merely a " drop in the bucket "
as compared with the total of British capital, and
on invested capital as a whole there can be no ques-
tion that the percentage of return is slowly falling,
not rising.

There is in this matter, as has been well remarked,
no essential distinction between the unearned in-
crement derived from land or other capital, and the
unearned increment which men of exceptional ability
receive. No man could earn a large income if it
were not for the fact that there is a wealthy com-
munity around him. The manager of a great
Railway Company, for example, earns to-day a
salary larger perhaps by £3,000 than was ever
earned by the manager of a line of stage coaches
three generations ago, and it is undoubtedly owing
to the growtli of the community that this increment
of £3,000 has become possible. But no one dreams
of this increment being seized as "unearned " income.

Amongst wage-earners the position is precisely
simihir. As stated on p. 61, the income of the
Masses was £9 per head in 1843, and £26 per head in
1905, and it is due solely to tlic existence of our in-
creasingly prosperous community that this increment
of £17 per lieud lias come into existence. It is
certainly not due to the artisans of to-day being
as a rule more skilCul. or working longer hours, than
their great-grandfathers. Vet, as in our previous
example, the idea of the State seizure of this incre-
ment occurs to no one.

The matter docs not end even here. .Apart from
personal service, such as we have termed heailwork

132 INCREMENT

and handwork, most of our dealings with each other
take the form of the sale and purchase of com-
modities, and the seller naturally tries always to
make a profit, in order that his work may leave
him a successful result. Such profits constitute the
seller's income, and they exist solely in virtue of
the fact that there are around him people who buy
from him. Without those people there would be
no market for him to supply, and consequently he
could make no profits. If then we are to adopt
the principle that the community should take the
"increase caused by the community," he ought to
forfeit his profits to the State 1 No one of course
thinks of demanding such a thing.

But then, the Socialist will exclaim, these cases
are not on the same footing. The seller, the work-
man, and the railway manager are all workers, and
their increment — profit, or wages, or salary — is
earned. The owner of urban land, on the other
hand, obtains his increased ground-rents without any
effort on his part, and therefore his unearned incre-
ment ought to be taxed more and more until ulti-
mately the State gets it all, and he none.

To this contention there will be found an excellent
answer in the following extract from a speech lately
made by Mr. Harold Cox in the House of
Commons : —

" If they accepted the doctrine of specially taxing
unearned increments on land, they were driven to
the conclusion that property, qua property, ought to
have no return at all. The adoption of this principle
meant the destruction of the source of national
wealth.

" Unless people could get a return from invested
property tliey ivould not trouble to accumulate property

INCREMENT 133

in 07'der to ifivest it. Every one would li\ e up to the
full extent of his income, and there would be no
progressive increase in the wealth of the community.
If this principle were adopted, they would gradually
go back to the condition of their primitive ancestors,
from which they could not have escaped unless they
had accepted the principle of private ownership in
property. The country was richer to-day than it was
a thousand years ago, because individuals had laid by
portions of their wealth instead of spending it. If
they adopted this proposition {i.e. of specially taxing
unearned increment in land) they would be cutting
at the very principle, at the root, of property."

The weighty sentence printed above, in italics, sets
forth the principle on which a large portion of our
economic system is based, i.e. that the owner of
capital, when he permits other people to use it, is
entitled to such reward for its use as may be agreed
on from time to time. Houses, for instance, are
built and kept in repair because rent can be obtained
for them when let. Forbid the payment of rent,
and naturally no more houses will be built for letting
in the future, while existing houses will be left to fall
to pieces. Railways are constructed and operated
because they make (or expect to make) profits.
Forfeit such profits, and there is at once stopped
all future railway construction, while existing lines
fall into utUr disuse. A few years of such decay
of capital, and we should soon get back to the crude
life of our " primitive ancestors."

This principle apj)lics all round, whatever form
the capital may take, and whoever be its owner.
To abandon this [)riiicij)le, on llie ground of in-
crement accruing without effort on the part of the
owner, would be to ordain that the reward of capital

134 INCREMENT

shall depend, not upon the benefit obtained by the
user, but upon the manner in which the capitalist
happens to occupy his time. The absurdity of such
a contention will be apparent if we imagine the
tenant of a house, before paying his quarter's rent,
demanding from his landlord proof that the latter
has not spent an idle day during the quarter in
question. Still more ridiculous does the situation
appear if one tenant has to pay rent because his
landlord is a busy merchant, while another is to
escape paying rent altogether because his landlord
happens to be a retired merchant. The crowning
absurdity is reached when the owner of the house
is a building society, or other associated body, with
perhaps hundreds of shareholders, into all of whose
personal occupation no tenant could ever hope to
make inquiry. There is hardly a single transaction
between human beings, whether capital be involved
or not, in which similar anomalies would not crop up,
if we once forsake the principle that what a man owes
depends upon what he has agreed to pay, and not
upon the personal habits of his creditor.

As a matter of fact, a large portion of our capital
has been accumulated for the express purpose of
producing an annual unearned increment. Thus,
most of the savings for old age, and practically all
bequests for widows and daughters, are made on
this basis. So too our various thrift societies, with
their membership of 33,837,922 persons, and their
aggi-egate investments of £439,288,985 (Blue Book 105,
p. 44), depend for their continued existence upon
their receipt of unearned income. The principle has
been specially useful as applied to large enterprises,
such as railways, steamship lines, etc., where the
enormous capital required is far greater than could

INCREMENT 135

be subscribed by those who actually operate such
enterprises. To forbid all return from invested
capital would mean, in practice, that no business could
be rim except by the actual owners of its capital,
that no house could be occupied except by its land-
lord, that no money could be lent at interest, that no
ship could be chartered, that all savings must lie
idle, and so on. In short, the prohibition of " unearned
increment " would not only check the all-important
annual increase of our national capital, but would
also cripple hopelessly many uses of our accumulated
wealth which have been found imperatively necessary
to the community. " Neither a borrower nor a lender
be" may be a good maxim in private life, but its
application to our commerce would close down many
of our most valuable enterprises.

CHAPTER XXIII

THE MASTER OF COMMERCE

Socialists denounce our present economic system,
under which they assert that both labour and brains
are dependent upon capital for a livelihood. Up
to a certain point this assertion is correct, since
the owner of capital has unquestionably a good deal
of power. He selects the enterprise to be under-
taken, he controls it in operation, and because of
his ability to pay salaries and wages he is able at
his discretion to engage or dismiss his employees.

But the Capitalist is not the master of commerce,
as many short-sighted people suppose. On the
contrary, he is the Servant of the Community, as
he learns to his cost when he forgets this fact.
Let him try to force the public to buy stage
coaches, or crinolines, or ping-pong sets, or anything
else w^hich they decline to have, and he will soon
find that it is they, not he, who control the situation.
Should he persist in his misdirected effort, his power
to continue his dis-service will be automatically
stopped by the gradual loss of his capital.

The true masters of the economic world are the
Consumers, or, in other words, the whole Community,
who by perpetual changes in price dictate peremptorily
to Capital, to Head work, and to Handwork exactly

136

THE MASTER OF COIMMERCE 137

how production and distribution are to be regulated.
This holds good universally, even down to the most
trifling things. Our children, for example, act as
masters of commerce in so far as they choose their
own toys.

This control by our common master, the Consumer,
is world-wdde and perfect in its action. So far from
being chaotic, as the Socialists aver, it is scientific
to the last degree, since it compels producers and
distributors to use their utmost energies in supplying
everywhere, and as speedily as possible, exactly what
is needed. Its dire foe is monopoly, and its greatest
allies are free communication and quick transit.

There is in use, for betting on horse-races, a
machine known as the Totalizator, the principle
of wliich is that each deposit in it of money auto-
matically and proportionately alters the odds. That
is to say, this appliance gives to all persons using
it their true " proportional representation " in fixing
the market-valuation of each horse's chance of
winning. It secures to the minority of those persons,
as well as to the majority, their correct ratio of
influence upon the odds.

The control of tlic Consumer, when left free to
act, operates in precisely the same way as the
Totalizator. It is a true commercial democracy
because, unlike the mere majority control of political
democracy, it voices in absolutely correct ratio the
demands of cvcrifhodji. Kach man, woman, and
child in the country, in liis or her proportionate
measure, has a share in this control.

The chief economic defect of the State ownership
of capital, i.e. of Sociahsin, is that it would ciush
out this uuivcrsal control of the Consumer, since
it would make the Seller, instead of the Hiiver,

138 THE MASTER OF COMMERCE

the master of commerce. The effect of this, in
practice, would be that the community as a whole
(having individual desires exactly as it has them
now) would be able to buy, not what they all
wanted, but what a Majority of them chose should
be sold.

Examples of this fundamental defect could be
selected from any and every branch of our industry.
The free Briton, as he now is, can at present buy any
kind of bread he likes, and all the farmers, millers,
and bakers are straining every nerve to let him have
exactly what he desires, of the best possible quality,
and at the cheapest price. As, in so doing, they
are earning their respective livelihoods in strenuous
competition with each other, there is every in-
ducement to them to serve the customer well. It
is precisely this inducement which causes capital to be
accumulated, encourages invention in the hope of
reward, makes managers full of anxiety that their
management be efficient, and helps to make workmen
capable.

Under Socialism this inducement would be gone.
Bread-making, like all other industries, would be a
strict Government monopoly, and consumers would be
compelled to eat exactly what the Government chose
to give them. A group of them in one town might
perhaps object to the quality or price, and club together
enough money to set up a co-operative bakery of their
own. This, as a private capitalist enterprise, would
be promptly confiscated by the Government, and the
dissatisfied consumers would once more be reduced to
eating bread they did not like, or doing without
bread altogether.

In theory it may sound very nice for " the State "
to control all wealth for the common good. In prac-

THE MASTER OF COINIMERCE 139

tice it would ineaii that a huge army of Government
officials would dictate to the whole community exactly
what each man should eat, drink, wear, and do. These
officials, at least one million in number, would be
appointed by some process of election. That election
would be decided by a majority of votes. The result
would be that the mastery of the national commerce,
now held in common by every person in the country,
would pass into the hands of officials appointed by a
bare majority of the voters.

A difficulty of most vital importance would then
arise. At present the production of any commodity,
say iron, is regulated by the public demand for it.
The shipbuilder wants plates to make a ship, the
engineer wants castings for a machine bedplate, the
builder wants joists for a shop front, and so on. The
ironmaster has to regulate his production and quality
by the requirements of the shipbuilders, engineers,
and builders, in competition with other ironmasters.
Thus for iron, as for all other commodities, there is
an open market, the quantity and quality of each
commodity being determined by free competition all
round.

Should any article become scarce the consumers,
instead of calHug out " We want more of this," do
what comes to precisely the same thing. They com-
pete with each otlicr in buying up the stock available,
and in so dcMiig they j)ut uj) the price of tlie article.
Meantime the suppliers, always keenly on the watch
for change in market prices, promptly learn what has
happened, and they in their turn compete with each
other to offer some more of the needed article. They
have every inducement to act (jwickly, for the one
who "gets there first" will be the one to reap the
benefit of the higher price. To compete is to *' seek

140 THE MASTER OF COMMERCE

with," and the more supphers there are the more will
they seek in emulation with each other to serve the
interests of their customers. It is by this competition
that the demand of the consumer is met in the most
effective way possible.

But there is another and an equally important
service rendered by an open market. It checks
over-supply, by causing a fall of price when any
commodity becomes too abundant, and when there
are therefore more sellers than buyers. Should the
price fall too low, without any corresponding cheapen-
ing in the cost of production, the trade will become
unremunerative, and so cause the suppliers one after
another to drop out of the business. This they do
in accordance with that instinct of self-preservation
which warns them that if they continue working at
a loss they will in time destroy all their capital.

Thus, under our present conditions, Demand is
indicated by Price in Competition, while Supply is
governed by Profit in Production.

Under Socialism this would all be changed. There
then being no capitalist except the State, no one but
the State could effect any wholesale purchases or sales.
Thus there would be no wholesale competition, and
therefore no wholesale prices. All the non-retail
transactions within the country would be merely the
transfer of commodities from the care of one set of
officials to the care of another set of officials, and there
would be no means of fixing a price, since the State
cannot be both buyer and seller of its own property.
No longer would there be an open market, with its
indication of short-supply by a rise in price, or its
warning of over-supply by a fall in price. In short,
the State ownership of property would destroy abso-
lutely the mastery of commerce now held by the

THE MASTER OF COMMERCE 141

whole community, and would leave the State officials
without any guide as to the national needs.

Further, it would be impossible, in the absence of
prices, for any property to be valued wholesale, except
by guesswork. This means that no reliable accounts
could be kept, and this in its turn means that the
Socialist State officials would never know whether
their transactions were being carried on at a profit or
at a loss. We know what now happens to individual
traders w^ho are such bad men of business as not to
keep the accounts they ought to keep. They are
like the captain of a ship navigating an unknown sea
without a chart, and like him they are in imminent
risk of wrecking and destroying the capital under their
control. It may well be believed that results equally
disastrous would attend the trading of a coUectivist
State by whom wholesale account-keeping is, and
always must be, impossible.

It is not only in commerce that Socialism would
forbid the law of Supply and Demand to operate.
Yet another market would be closed, and tliat is the
market for the free expression of public opinion. All
printing presses and paper are capital, and as such
would be owned by the State, and controlled ex-
clusively by State officials. No one could, witiiout
the assent of those officials, express his opinions in
any book or newspaper, and it may fairly be surmised
that sucli assent would never be given to any Anti-
Sociahst writer, just in the same way as contribu-
tions expressing Liberal views are at the present time
refused insertion in a Conservative newspaper, and
vice versa. It is a (juestion indeed whcLlicr Anti-
Sociahsts would not be treated as traitors to the
State, just as any (jue would now be wiio attempted
to dethrone the King.

142 THE MASTER OF COMMERCE

The same restriction would apply also to public
speech, since all public buildings would be State
property, and controlled by State officials. At
present any one can write or speak his mind, short
of libel or slander, and the whole advancement of
knowledge, together with the ventilation of griev-
ances, depends absolutely upon unfettered liberty
of discussion. It would be a farce to pretend that
any such liberty would be tolerated under Socialism.

It is to be remembered, too, that " the State " or
" the people," whereof the Socialists discourse so
pompously, would certainly not be under Collectivism
such a happy and unanimous family as it is assumed
they must be. Practically all those whose property
had been " expropriated " by the State, with most of
the able commercial men whose income had been
reduced by Socialism, and many of the best artisans,
would form a compact band of bitter opponents to
the reformed Government, and could doubtless insist
upon having some share in the appointment of the
State officials. Then, indeed, a battle royal would be
waged, without intermission, the Socialists pressing
that their officials should maintain a strict tyranny
over the whole community, and the Anti-Socialists
doing their utmost to lighten that tyranny. The final
court of appeal being " the people," victory would rest
with the most expert demagogues, to whom — and not,
as now, to the most capable business men — the
direction of commerce would be entrusted. There
being no wholesale prices in a Socialist State, these
elected representatives would have no guide as to
whether or not they were carrying on the national
business with due regard to the law of supply and
demand, and by reason of the inevitable absence
of wholesale book-keeping there would be no means

THE IVL4STER OF COM^IERCE 143

of calling upon them to give any account of their
stewardship. Political Intrigue, instead of the Needs
of the Consumer, would become the master of
commerce.

Socialism, in prohibiting competition, is proposing
to break that law of nature, the law of supply and
demand, which is the foundation of all economic
progress. It intends that a Parliamentary majority
shall by force establish two monopohes. The first
is to make itself the Sole Seller of Commodities,
thus denying to every man, woman and child in
the country the boon of an open market in which
to purchase the requisites of life, and stopping all com-
petition towards improvement in the supply of those
requisites. The second monopoly is for the same
Parliamentary majority to make itself the Sole Buyer
of Headwork and Handwork, thus depriving all
employees of the boon of an open market in which
to sell their services to the best advantage. A
special feature would be the State payment, to the
least capable and the least useful members of the
community, of a wage considerably higher than
the economic value of their work.

In both these monopolies it is proposed that the
will of a mere human majority shall attempt to out-
ride and override a law of nature. Anti-Socialists
have no doubt as to the disastrous result of such a
contest, and their mission is to prevent it from ever
taking place.

TABLE A

Estimate of Income of the United Kingdom in 1905

Annual Income.
£20,000,000

21,000,000

35,000,000

45,000,000

Persons receivino Ihcomg.
NombeT. Annual Income.

f Over
250 I. ^40,000

f 20,000 to
'^ I 40,000

f 10,000 to
2,500 i '
'-' I 20,000

Families.
Nnniber. Average Income.

250 ^80,000
750 28,000

Rnbject to
Income ( y
Tax. ^

'.5«.{ ]•::

000 to
000

2t5oo
6,500

121,000,000

87,000,000

220,000,000

250,000,000

10,000 10,000

35,000 /■2,0O(?t05,00O 35,000

255,000 700 to 2,000 255,000

800,000 160 to 700 700,000

14,000
7,000

2,500
860

357
^678

£678,000,000 1,100,000 1,000,000

50,000,000 Income eiunpcl :iiicl taxed, but uot distributed

£728,000,000

W^e^^Tc'n.. 247.000.000 3,000,000 ;^82

Manual / 750/X)0,000 14,000,000 53)^2

Wagt-Kame™. 1. 25,000,000 1,000,000 25/-'

£1,750,000,000 19,100,000 |><rsOUH.

2,000,000

6,000,000
1,000,000

^124

124^
^ y I II

''5'

10,000,000 iaiiiilioa.

'45

TABLE B

Estimated Distribution of United Kingdom Income in 1905

Annual Income.
Peraons. Families. Amount. Average per family.

'R. . over ;!^5, 000 40,000 10,000 £121,000,000^^12,1001

U.M. • p^7oo to 5,000 1,160,000 290,000 307,000,000 1,059 1-678
L.M. . ;!^i6o „ 700 2,800,000 700,000 250,000,000 357^

Income earned and taxed, but not distributed 50,000,000

4,000,000 1,000,000 728,000,000
g r Artisan ^52 to 160 27,000,000 6,500,000 922,000,000 142I

I (.Unskilled under ;^52 12,000,000 2,500,000 100,000,000 40J

43,000,000 1 0,000,000 £ 1 ,750,000,000 ;^ 1 7 5

146

TABLE C

Estimated Expenditure of United Kingdom Income in 1905

Familiks. Income saved Anndally. Income Expenditure per Family

Number. Per cent. Amount. Per cent. Spent Ansually. Avemge. Per cent.

R. 10,000 — £51,000,000 42 £70,000,000^7.000 5

U.M. 290,000 3 107,000,000 35 200,000,000 (^9°) 13

[434
L.M. 700,000 7 20,000,000 8 230,000,000 3 29 J '5

Income not distributed 50,000,000

A. 6,500,000 65 22,000,000 2] 900,000,000 138I 60

U. 2,500,000 25 — 100,000,000 40J 7

10,000,000 £250,000,000 £1,500,000,000 jCi5°

TABLE D
Summary of Table C

% % %

Classes 1,000,000 lo /■228,ooo,ooo yr ^^500,000,000 jC5°° 33

Masses 9,000,000 90 22,000,000 9 1,000,000,000 i ' 1 67

10,000,000 £250,000,000 £1,500,000,000

147

TABLE E

Expenditure in the United Kingdom under Equal Redistribution

Number of
families.

Income s))cnt
annually.

New
outlay.

Fonuer
outlay.

Loss or gain
per family.

R. .

10,000

£1,400,000

140

7,000

— 6,860

U.M.

290,000

40,600,000

140

690

- 550

L.M.

700,000

98,000,000

140

329

— 189

A. .

6,500,000

910,000,000

140

138

+ 2

u. .

2,500,000
10,000,000

350,000,000

140

+ 100

£1

,400,000,000

TABLE F

Expenditure under Graded Redistribution

Number c.f
families.

Income spent
annually.

Now

outlay.

Former
outlay.

Lobs or gain
per family.

0. .

1,000,000

£230,000,000

230

A. .

6,500,000

910,000,000

140

138

+ 2

U. .

2,500,000
10,000,000

260,000,000
£1,400,000,000

104

+ 64

148

TABLE G

Estimate of European Income in 1896

Population in
millions.

Total annual
income.

Average \wt
poraon.
£ s. A.

United Kingdom •

£1,423,000,000

France •

1,199000,000

Belgium

181,000,000

Denmark

60,000,000

Holland

124,000,000

Germany

1,284,000,000

Switzerland

70,000,000

Norway and Sweden

142,000,000

Austria •

707,000,000

Spain

273,000,000

Italy .

436,000,000

Portugal

64,000,000

Danubian States .

147,000,000

Greece •

28,000,000

Russia .

106

1 ,004,000,000

Europe

•

£7,142,000,000

£19

'49

TABLE H

Estimate of British Capital in 1903

Public property:—

Imperial : warships, docks, public

offices, posts and telegraphs, etc. • 500,ooo,cxx)

Local: roads, bridges, parks, schools,

tramways, gas, water, etc. . . . 1,150,000,000

1,650,000,000
Less National Debt and Local Loans 1,200,000,000

Private property in the United Kingdom : —
Houses, factories, offices, and their

lands 2,860,000,000

Miscellaneous trade capital- • ■ 2,000,000,000

Agricultural lands, farms, stock, etc. 1,220,000,000

National debt and local loans . 1,200,000,000

Railways 950,000,000

Household furniture .... 500,000,000

Mines, gas, water, tolls, etc. • . 430,000,000

9,160,000,000
Private property abroad • . 1,840,000,000

450,000,000

11,000,000,000

Total • . £11,450,000,000

150

TABLE J

Approximate Number of British Capitalists in 1903

Number of parsoni.

Capital owned.

Average per person,

240

£800,000,000

£3,333,000

1,950

1,192,000,000

601,000

6,780
8,970

1,358,000,000

200,000

3,318,000,000

12,570

1,192,000,000

94,830

26,850

1,310,000,000

48,790

68,640

1,550,000,000

22,580

481,740

2,260,000,000

4,690

283,920

338,000,000

1,180

Classes

. 882,690 *

10,000,000,000
1,000,000,000

Artisans

• 1,459,980*

Unskilled

•

£11,000,000,000

* Both of IheM flipirea are clearly underslatnd, niqce practically all of tbe Claagee, and
moft of tbe ArtUani, own tome capiu).

151

TABLE K

Estimated Return upon Capital in the United Kingdom

Number of
families.

Capital owned. Percentage.

Return at 3 per
cent.

Rich .

10,000

£3,400,000,000

£102,000,000

Middle Class

990,000

6,600,000,000

198,000,000

Artisan

6,500,000

1,000,000,000

30,000,000

Unskilled .

2,500,000

10,000,000

£11,000,000,000

330,000,000

Reward for risk, for head work, and for handwork 1,420,000,000 81 %

Total Income • • £1,750,000,000

15:

TABLE L

Analysis of United Kingdom Income

Millions of pounds.

Rich and Middle Classes: —

Return at 3% on 10,000 millions

Superintendence and compensa-l

tion for risk J

Fees and Salaries

Artisan and Unskilled Classes: —

Return at 3 % on 1,000 millions . 30
Wages and Small Traders* Profits 992

Income not distributed

Savings •

Income

Estimated

Income

Percentage
of total

distributed,

saviogs.

spent.

income.

300

100

200

228

170

150

130

678

178

500

2(;

1,022
1,700

Total Income, in millions sterling

200

1,000

1,500

250 \

— ^ 250

• £1,750

100 %

153

TABLE M

Population of the United Kingdom in 1901

Ages.

Male.

Female.

Total.

Under 10 . . .

4^65,288

4»558,o83

9,l23,37l

10 to 20 .

4,216,365

4,229,272

8,445,637

20 „ 65 •

10,429,676

ii,44i»32i

21,870,997

Over 65 ....

891,079

1,127,637

2,018,716

20,102,408

21,356,313

41,458,721

Blind ....

16,935

15*888

32,823

Deaf mutes

11,852

10,003

21,855

Mentally deranged •

84,936

93,059

177,995

Indoor paupers (not casual)

186,312

Outdoor ,, „

—

489,498

In hospitals

—

54,246

„ prisons

22,357

,, reformatories

33,656

Retired from business

262,175

81,635

343,810

Pensioners

25^67

1,142

26,709

Living on own means

93»38i

361,996

455,377

IS4

Diagram Number One

CLASS DIVISION AND INCOME EXPENDITURE OF THE
UNITED KINGDOM IN 1905.

(Table C)

Income

Rich

Upper Middle

Lower Middle

Non-Manual
Wagre Earners

Skilled Manual
Wage Earners

25 Unskilled

•oo'/.

Families

ss 10.000:
3QO.000

Savings 350 Millions

»-
z

u
o

700.000

3,000,000

6,500,000

3,500,000

Spent 70 Millions

300

330

340

660

100

looV.

10,000.000 Families

Income £1,750 Millions

»55

Diagfam Number Two

DISTRIBUTION OF INCOME IN THE U.K.

DlSTRlBUT»ON
AS AT

Present.
(Table C)

Equal

Socialistic

Redistribution.

(Table E)

Graded

Socialistic

Redistribution.

(Table F)

Savings

Classes

156

Diagram Number Three

fNCOME

Millions

GROWTH OF INCOME

IN THE UNITED KINGDOM

DURING THE LAST SIXTY YEARS /

/
/

Population

371

Millions

Income
Millions

!5avln|rs|

Classes

Artisans

Inskilled

/ /

Population /

43 / /
Millions /
/ /
/

Classes

Artisans

I'nskillcd

1843

1905

157

Diagram Number Four

OWNERSHIP OF CAPITAL AND
EXPENDITURE OF INCOME IN THE U.K.

H
Z
Id

( Tables K and C )

Capital Owned

Income Spent

(J
at
u)

31 Rich

60 Middle Class

9 Masses

1007,

3,400 Millions

6,600 Millions

1,000 Millions

70 Millions

430 Millions

1,000 Millions

£11,000,000,000

1007.

£1,500,000,000

158

Diagram Number Five

Capital
Saved
£630

THE

AVERAGE ANNUAL RETURN

IN THE UNITED KINGDOM

UPON CAPITAL •

(Table L )

Savinf (or rulurr Inveitmenl JC14 }

(°n|oy«] by Ihc Invrator or hli Children ' i>
Untoyrd by Ihutc who manaKc Ihc Capital 17

tiijuyrd by Ihc Anltan and tlniklllcd 57

Return

£630 of Capital produces an \vcra)fe Personal Income of jGioo aniiually.

•59

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LONDON AND AVLKSBURY.

UNIVERSITY OF CALIFORNIA LIBRARY
Los Angeles

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